Those who are in charge of monetary policy have strong tools at their disposal. Their responsibility is always heavy, due to the fact that their actions or failure to act impact on the entire population. In normal times, however, the impact of these strong tools is rather less acute, and the effects of monetary policy – both intended and non-intended – are usually easy to foresee. At the moment, this is more difficult because we are obliged to use unusual instruments. Consequently, at times like this the SNB bears a particularly high level of responsibility. We are therefore subjecting the impact of the measures we have taken so far to repeated and very fundamental review, and are approaching this task with a completely open mind. Conclusion I would like to conclude my presentation to you as follows. The SNB is fighting for price stability with total conviction and great commitment, while at the same time keeping the development of the economy in view. Within the context set by our monetary order, the SNB does its utmost, through its monetary policy, to ensure that our money retains its value, thereby remaining a sound pillar of our society. This is the SNB’s most important contribution  BIS central bankers’ speeches  7  to ensuring the long-term attractiveness and competitiveness of the Swiss location, as well as the social cohesion of our population. By their nature, central banks tend to be conservative institutions.
In other words, estimated risk weights are very likely to be least reliable when regulators are most reliant on them. By construction, when it matters most, risk weights are likely to be long noise and short signal. 4  BIS central bankers’ speeches  Theoretical objections to risk weighting are no less deep-seated. One key issue is aggregation (Masera (2012)). Regulation has focussed on ever-more granular and precise risk estimates for individual assets. Fewer attempts have been made to consider correlations across broad asset classes, other than in parts of the trading book. Yet it is these correlations which fundamentally determine risk across a banking portfolio. Indeed, this is perhaps the key lesson finance theory has taught us over the past half-century. There is a cruel irony here. One of the great pre-crisis mistakes was to look at risk in the financial system institution by institution, atom by atom. Doing so resulted in regulators missing the systemic crisis of a lifetime. Yet an asset by asset, atom by atom approach to risk measurement still lies at the heart of the post-crisis regulatory framework. A second conceptual problem with risk-weighting is that it takes no account of the collective consequences of banks’ asset allocation decisions. For example, no account is taken of the externalities, positive or negative, that banks’ portfolio choices may give rise to. This may lead to risk weights being mis-calibrated from the perspective of the financial system as a whole and the wider economy.