During my years at the IMF, I have seen this pattern repeat itself – and it is not a pretty sight. In Europe, we face a particular and somewhat peculiar cooperation problem. This is sometimes described as the trilemma of banking supervision. A trilemma is similar to a tradeoff, and means that you want to pursue three objectives but you can only achieve two of them. One needs to be given up. The three objectives in this context include, first of all, effective banking supervision and crisis management, secondly, national sovereignty of supervision and crisis management; and, finally, an integrated European market and all the benefits coming from more competition. In the EU, we have chosen the latter two – economic integration and national sovereignty of supervision and crisis management. This national sovereignty is manifested in what is known as the home country principle, meaning that the supervisory authority in the country where a bank is domiciled takes complete responsibility for the supervision of its branches abroad. This home country principle is combined with economic integration and allowing banks to establish operations across Europe. In choosing these two objectives, the third objective – effective supervision and crisis management – has been forsaken. This is clearly manifested in Europe’s current approach towards supervising banks and managing crises. Economic integration and the EU’s pursuit of a single market for financial services have meant that some banks have expanded beyond the means of their home countries.
The SNB’s monetary policy remains focused on the maintenance of price stability in the medium term and, since September 2011, on the enforcement of the minimum exchange rate. Consequently, possible distortions in the growth of credit aggregates that could endanger financial stability should be managed, first and foremost, with the macroprudential toolkit.5  5  Cf. speech by Jean-Pierre Danthine, “Taming the financial cycle”, 30th SUERF colloquium, Zurich, 5 September 2012. BIS central bankers’ speeches  5  Concluding remarks In conclusion, I would like to stress that we are living in an exceptional monetary policy situation, and not in a new world. The flexibility shown by central banks in the crisis was necessary to prevent a downward spiral. Apart from the central banks, governments have also taken measures to manage the crisis. Important steps have been taken in the regulation of banks, including the tightening of capital requirements. Measures to bring about a longterm restructuring of public finances, however, remain unsatisfactory in many countries. Monetary policy has opened up a time slot that will enable this to be done. It would be disastrous for the long-term future of the global economy if it were not used. In the countries most concerned, government budgets must be returned to a sustainable path as soon as possible. Moreover, a consolidation of this kind would reduce the risk of overburdening monetary policy. As far as Switzerland is concerned, the minimum exchange rate against the euro will continue to apply.