Based on this analysis, in the third part of my speech I will describe the wide-ranging regulatory measures taken at international and national level to resolve ‘too big to fail’. Let me just present our own conclusion up front: In Switzerland, the response was quick, targeted and, at the same time, cost-effective. On the one hand, the regulatory amendments strengthened banks’ resilience, reducing the likelihood of a bank getting into financial distress. On the other hand, they introduced measures aimed at ensuring that even a systemically important bank can exit the market in an orderly way in the event of a crisis. We are convinced that the Swiss big banks and the Swiss banking system are much more weatherproof today than they were ten years ago. Many of the planned measures have already been implemented. Page 2/14  However, we have still not quite achieved our objective. Only once the agreed measures have been fully implemented will the conditions for resolving ‘too big to fail’ in Switzerland be in place. The ‘too big to fail’ issue So what is behind ‘too big to fail’, and what concrete form does it take in Switzerland? a) ‘Too big to fail’ institutions must be bailed out in a crisis ...  As I mentioned at the start, ‘too big to fail’ means that an individual institution is so important that the state is under a de facto obligation to bail it out in a crisis. This state obligation arises under two conditions.
Correlations between regional import volumes rose to close to unity at the height of the crisis (Chart 12). The strength and length of global supply chains caused a synchronous collapse in trade (Bems et al (2012)). The second was the Japanese earthquake and tsunami in 2011. Because Japan plays a central role in global supply chains as a producer of high-value intermediate goods, this had a cascading effect on global production. For example, as Japanese car producers ceased production, their foreign affiliates were unable to compensate because they depending on inputs from Japan (OECD (2013)). Deepening global supply chains mean a large number of countries are now potential “super-spreaders” of global trade contagion. The story is similar, if on an even more dramatic scale, when it comes to global banking. Chart 13 plots the network of cross-border bank lending flows across a wide range of countries, in 1980 and in 2007. As with trade, the wiring of the international banking network has become significantly more dense and complex (Minoiu and Reyes (2013)). 11 And as with domestic banking networks, there is a clear core-periphery pattern to the network, with a small number of nodal “super-spreader” banking sectors serving as international lenders to the periphery banks. The global financial crisis provided a telling illustration of the susceptibility of such a network to a weakening, or failure, of the core banking sector. As these core sectors came under stress, it caused a significant cascading of global interbank contagion.