After provoking an exceptional increase in liquidity in August, on 6 September 2011 the SNB announced that it would no longer tolerate a EUR/CHF exchange rate below CHF 1.20. This measure remains the focal point of Swiss monetary policy. In the current global context, Switzerland’s economic situation does not justify any strengthening of monetary conditions and this should remain the case for the foreseeable future. The SNB continues to enforce this minimum rate with the utmost determination and remains prepared to buy foreign currency in unlimited quantities for this purpose. From a conceptual perspective, the minimum exchange rate is not a quantitative easing measure and most of my generic comments do not strictly apply to the Swiss case. Nevertheless, the risks associated with this measure do, to a certain extent, resemble those I just described. The first of these risks is that the minimum exchange rate may superficially seem like a simple or straight-forward measure, which may in turn give the impression that monetary policy is a catch-all problem-solver, i.e. that it is almighty. This is clearly not the case. Monetary policy has neither the capacity nor the mandate to protect the Swiss economy from all the shocks to which it is subjected. The aim of the minimum exchange rate is to avert the worst possible developments in zero interest rate environment. It is not a response to each and every challenge with which the Swiss economy is faced, nor can it be implemented at any desired level, free of any risk.
One is that the ability of supervisors to make plans to co-operate across borders, and thereby to reduce the regulatory burden on an individual bank during the transition to the new framework, depends to a great degree on the clarity of a bank’s own implementation plans. Another finding is that in some cases the overseas branches and subsidiaries of the bank may know very little about its own plans to adopt Basel II. This may be true even in some institutions that plan to adopt advanced approaches. Because the bank’s local managers may lack knowledge of how Basel II will be implemented internally, supervisors in the host jurisdiction may be uncomfortable with the bank’s overall readiness for Basel II. It may simultaneously increase the host supervisor’s need to contact the bank’s head office or its home supervisor for more information - something that might duplicate requests for information. The bottom line is that for home and host supervisors to work toward a more consistent application of Basel II, each bank’s own plans for adopting the approaches in the new framework should be clear and comprehensive. Equally important, banks should communicate those plans not just to their supervisors, but also to their own overseas branches and subsidiaries. And now, if you will permit me, before concluding my remarks today I would like to put on a different hat for a moment, and speak from my perspective as a banking supervisor from a European Union country.