Third, given the geographical diversification of the two big banks, an activation of the CCB focused on domestic risk-weighted assets would not have a material impact on these banks’ overall capital situation. Finally, by contributing to financial stability and hence reducing the risk of domestic banking crises, the CCB should help increase the overall long-term attractiveness and competitiveness of the Swiss financial sector. How the CCB works Let me now address four key questions pertaining to the functionality of the CCB; and, for that matter, of any macroprudential instrument targeted at containing the cyclical dimension of systemic risk. First, how do we know that imbalances have reached a level such that an activation of the CCB is warranted? 12  These minimum requirements are twofold: First, at least 10% of the value of the collateral must be provided in equity from sources other than borrower’s pension assets. Second, the mortgage debt on residential properties has to be repaid such that it amounts to no more than two-thirds of the collateral value after 20 years. BIS central bankers’ speeches  5  As mentioned earlier, identifying unsustainable developments in asset and credit markets is inherently difficult. Thus, the aim cannot, and should not, be to surgically prick bubbles or to fine tune asset-price or credit market developments. It is easier, however, although not trivial, to identify situations of intensified financial stability risk. In such cases, taking precautionary action is fully justified.
There have been over 9 million reported cases of Covid globally and over half a million reported deaths, around 0.01% of the global population.1 As a point of comparison, the Spanish flu of 1918 recorded 33 million deaths or close to 2% of the global population back then.2  During the first few months of the year, and unlike in 1918, most countries put in place social distancing measures to contain the spread of the virus, albeit at different times and with differing degrees of stringency (Chart 1). Predictably – indeed, intentionally – these measures severely curtailed movement of goods, services and peoples, constricting economic activity across a very wide range of sectors and countries. 1  Data from European Centre for Disease Prevention and Control. Estimates of the death toll are uncertain. The number quoted here averages the mid-range of estimates in Patterson and Pyle (1991), Johnson and Mueller (2002) and Spreeuwenberg et al (2018).