Second principle: The criteria governing the management of foreign exchange reserves are primarily the security of investments and their liquidity. Return is also a factor. Secure and liquid assets are key, because the SNB must always be able to implement its monetary policy, and hence must have rapid access to its foreign exchange reserves, should the need arise. The need for secure assets means that a large proportion of our investments are in government bonds; the need for liquidity means that we invest in the world’s most liquid assets and currencies. Finally, the third principle is this: The SNB takes care to ensure that its investments do not disrupt the markets. We are aware that the huge amounts we have under management could impact significantly on market prices. To prevent this kind of problem, we control the volumes we place on the markets, so as to avoid having any perceptible market impact. Thus, with such a large volume to invest, there is a fairly long period of transition before the desired allocation is achieved. We are sometimes obliged to hold liquidity on our accounts at other central banks for a while, until it can be invested in line with our investment strategy. A number of players are involved in implementing the investment strategy. I am not planning to go into too much detail about the investment process today. Briefly, the Governing Board decides on the main investment principles, as well as the strategy.
As I am sure you are all aware, these provisions will allow banking groups to make one application for approval in relation to the group as a whole, and will require the relevant supervisors to co-operate in trying to reach a common agreement on the application. Should it prove not possible to reach agreement within six months, the consolidated supervisor will have the power and responsibility to take the decision. This is a significant development in the regulatory framework, giving the consolidated supervisor the possibility to take decisions with an impact that reaches outside the national jurisdiction. I am aware that the European Banking Federation believes that full consolidated supervision should be determined now as the ultimate objective for the EU regulatory and supervisory framework, but I believe that we have to approach this carefully, and see how the new provisions work in practice in this more restricted area. I also think that it is important to recognise and respect the legitimate concerns of host supervisors. As I have already mentioned, the banking systems of some of the new EU member states are predominantly made up of incoming institutions. We should ensure that host supervisors are able to access sufficient information on the institutions operating locally and, where necessary, in relation to  BIS Review 84/2005  3  the wider group. The capital requirements directive also includes provisions in this respect and notes the need to take account of the significance of the institution in local markets.