Thomas J Jordan: Financial Stability Report – potential risks and actions Introductory remarks by Mr Thomas J Jordan, Vice Chairman of the Governing Board of the Swiss National Bank, at the half-yearly media news conference, Berne, 16 June 2011. *  *  *  In my introductory remarks today, I would like to present the most important points from our recently published Financial Stability Report, in which we consider potential risks to financial stability and identify where action may be needed. General economic and financial conditions for the Swiss banking sector improved further in 2010. Overall, global economic growth was stronger than expected last year, despite the expiry of fiscal stimuli. In Switzerland, too, economic development was robust and growth was high in an international comparison. Against this background, the profitability and capital situation of both big banks improved further, and remained good for banks with a domestic focus. However, the economic environment remains fragile, and a renewed, sharp deterioration over the next twelve months cannot be ruled out. In the short term, the prevailing uncertainty primarily affects the two big banks, which are still exposed to considerable credit and market risk relative to their loss-absorbing capital. For domestically focused banks, by contrast, the risks are largely of a medium-term nature, and are related to potential adverse developments on the Swiss real estate and mortgage markets. In view of these risks, all Swiss banks should ensure that they have a broad and high-quality base of loss-absorbing capital.
The picture is not as bright as last spring At the time of my previous meeting with the Committee, our discussion was coloured by some relief that the effects of the terrorist attacks on 11 September 2001 had not had a particularly marked impact on the world economy. The uncertainty among firms and households had subsided to some extent and there were signs that economic activity abroad was beginning to improve. An optimistic mood was spreading. Order books seemed to have stabilised and in some cases had even taken a turn for the better. Moreover, an expansionary economic policy in many countries was expected to provide an additional stimulus. At the same time, I pointed out that we could not be entirely certain that world economic activity would pick up. Among other things I mentioned that the economic imbalances in the United States were still large and stock market valuations were high. So there were a number of questions as to whether demand would in fact rise on a broad front. Last spring, the moderate economic slowdown in Sweden had meant that inflation here remained high and resource utilisation was still tight. GDP growth seemed to have bottomed out during the summer of 2001. Unemployment had stopped falling. Inflation had been noticeably above the Riksbank’s 2 per cent target for a time. This was partly because so-called supply shocks had raised the price level and led to temporarily higher inflation.