Jean-Pierre Roth: Recent economic and financial developments in Switzerland Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the half yearly media news conference, Berne, 18 June 2009. *  *  *  Since the beginning of the financial crisis in August 2007, our monetary policy has passed through three distinct stages. In the first stage, as the interbank market gradually dried up, we sought to protect the Swiss economy from a deterioration in conditions on the credit market. From the start of the crisis, we countered the forces pushing the level of the three-month Libor up by undertaking appropriate reductions in the repo rate. Between September 2007 and September 2008, we were able to stabilise the Libor at 2.75%. Thus we protected our economy from a rise in interest rates resulting from the increase in risk premia on the money market. Since we were confident that the economic downturn would have a moderating effect on prices, we refrained from adopting a more restrictive monetary policy, despite the fact that soaring oil prices caused inflation to rise and risked destabilising inflation expectations. The second stage began in autumn 2008 with the emergence of the first indications of a swift downturn in the economy and the sharp deterioration in the financial crisis after the collapse of Lehman Brothers investment bank. We rapidly relaxed our monetary policy by bringing down our Libor target by 225 basis points to a level of about 0.5% within three months.
Bearing in mind what we have learned about the importance of financial markets in a highly integrated monetary union, taking measures to ensure a stable and well-ordered financial system in the euro area has to be our first priority. What does this imply in practical terms? First of all, a single supervisory mechanism for banks. As I outlined above, a single financial market combined with national supervision is not sustainable. Before the crisis, it led to a lack of oversight of cross-border activity. Since then, it has facilitated a retrenchment of bank lending behind national borders. A single system of supervision can reduce these risks by allowing for an aggregated view of the euro area financial market; by providing a safeguard against regulatory capture; and by ensuring that national interests are not put ahead of the European interest. With this in mind, the Commission has presented a proposal for the establishment of a Single Supervisory Mechanism, entrusting the ECB with specific supervisory tasks. This is a welcome development and the ECB is ready to assume these tasks. However, it is essential for the credibility of supervision, and for the ECB’s reputation, that the legal framework allows us to implement these tasks in an effective and rigorous way.