One instrument (namely, the interest rate) is often not enough for pursuing two objectives. More generally, the two objectives should be addressed with more than one instrument. The choice of instrument will depend on both the cause of the financial fragility and the institutional setting of each country. For a start, central banks should work closely with “micro-prudential” supervisors, communicating potential risks so that these can be incorporated into the supervision process or into changes in regulation. A regional house bubble would be a good example of this kind of coordination, with supervisors adjusting provisions accordingly. In addition, central banks  4  Chapter V, Financial Stability Report 1st half 2009, Central Bank of Chile. http://www.bcentral.cl/publicaciones/politicas/pdf/ief2009_1.pdf  BIS Review 76/2010  5  should consider macro-prudential regulation that adjusts capital, liquidity or asset quality regulation through the cycle or in periods of higher risk taking. Finally, central banks should not discard using their balance sheet to “correct” the prices of financial assets when these asset prices are leading to increased vulnerabilities in the financial system. In EMEs this is typically the case of a boom where there are signs that the currency may be strengthening beyond its fundamentals, in which case a mechanism of selfinsurance, such as accumulation of reserves, may help to smooth the transition and to have the economy well-prepared for potential reversals of capital flows. In the case of Chile, we have intervened three times in the exchange rate market since the currency was allowed to float in 1999.
Jean-Pierre Roth: Steps to strengthen the Swiss financial system Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the news conference, Bern, 16 October 2008. *  *  *  Pursuant to art. 5 of the Swiss National Bank Act (NBA), the SNB shall contribute to the development of our economy and the proper functioning of our monetary system. This is why the SNB has decided to extend a loan not exceeding USD 54 billion to the special purpose vehicle (SPV) set up to take over illiquid assets currently held by UBS. A similar offer has also been extended to the CS Group, which has refrained from making use of such a possibility. For the SNB, this operation is highly unusual, both with regard to its scope and the reasons for it. Scope of operation As to the scope of the operation, USD 54 billion is clearly a substantial amount for the National Bank. I would like to emphasise, however, that the loan amount is entirely guaranteed by the portfolio assigned by UBS, i.e. securities valued at USD 60 billion in the UBS balance sheet. Given the fact that in the past twelve months, UBS has made aggressive write-downs on its risky positions and that its portfolio is fairly diversified (it does not only consist of toxic assets), we feel that the risk of further losses on this portfolio is limited.