The combination of illiquidity, growing concerns with the real estate market, and ebbing confidence in the ratings resulted in dramatic declines in the pricing of Triple-A securities as the financial crisis worsened.4 Myth 3 – The “originate to distribute” model limited the balance-sheet risk of banks Over the decade preceding the crisis, large commercial and investment banks had become increasingly involved in securitizing mortgage assets. They argued that this provided a steady stream of fee income but generated little risk for the bank. While they packaged mortgages, they were not retaining the risk in their own portfolio – instead, the risk was taken by those that purchased the mortgage securities, particularly the lower-rated mortgage securities. What was frequently ignored by many was the rapid growth of Triple-A mortgage securities holdings elsewhere within the banks, as well as in off balance sheet structures. While these off balance sheet structures were considered separate entities, banks found the potential reputational risk of not supporting their sponsored off balance sheet risk sufficiently great that many ended up supporting these off balance sheet structures. In a sense, “originate to distribute” was, in practice, something more like “originate to hold, loosely, somewhat off to the side.”5 In addition, risk managers, bank management, and regulators were sufficiently lulled by Myths 1 and 2 to develop their faith in Myth 3.
In particular, the energy situation in Europe, the loss of purchasing power due to inflation, and tighter financing conditions are having a dampening effect. Inflation will remain elevated for the time being. However, the importance of temporary factors such as supply bottlenecks is likely to diminish over the medium term. The increasingly tighter monetary policy in many countries should also help inflation gradually return to more moderate levels. Our scenario for the global economy is subject to significant risks. For example, the energy situation could worsen again. At the same time, high inflation could become embedded and require stronger monetary policy responses abroad. Finally, the coronavirus pandemic continues to pose important downside risks to growth. Swiss economic outlook  In Switzerland, GDP growth in the second quarter was lower than expected, at 1.1%. This was mainly due to weaker performance in manufacturing. The short-term outlook has deteriorated. By contrast, the situation on the labour market has remained positive. The further development of the economy is likely to be shaped by the economic slowdown abroad and the availability of energy in Switzerland. To date, the prices of natural gas and electricity in particular have risen sharply. For this year, we anticipate GDP growth of around 2%. This is roughly half a percentage point lower than at the last monetary policy assessment. The level of uncertainty associated with the forecast remains high.