Including new players in stress-testing the system is challenging and requires cooperation and timely transparency. Many of these new players are non-banks. It is therefore important to look at the role of non-banks in payment and settlement systems. Payment, clearing and settlement services have traditionally been offered by banks and non-banks alike. The coexistence of banks and non-banks raises some important regulatory questions. In fact, while there is a trend towards common regulatory standards, banks would typically argue that they are subject to prudential supervision and that there is no need for further regulation. In contrast, non-banks would argue that common regulatory standards should apply to all relevant service providers in order to ensure a competitive level playing-field. In the end, the question is whether the approach to regulation should be based on functions or institutions. Finally, the globalisation of finance has resulted in the expansion of cross-border financial linkages. An implication of globalisation is that financial distress is more likely to have farreaching cross-border effects. This is a natural consequence of the tighter cross-border linkages that have formed. Such effects are almost guaranteed if distress were to involve one of the global players that operate across so many countries and underpin the smooth performance of so many markets. In fact, over 30 years ago, even the failure of a small bank active in FX transactions was sufficient to have significant cross-border ramifications – so significant as to act as a catalyst for the establishment of the Basel Committee on Banking Supervision.
Few doubt that there are challenges to defining and calibrating the indicators used to determine when capital buffers should be triggered, and by how much. However, to quote Borio, “while calibration is  17  Assenmacher-Wesche and Gerlach (2010). 18  Hott and Monnin (2008). 19  For examples of models which illustrate downward spirals, please refer to Markus Brunnermeier and Lasse Pedersen (2009), Stephen Morris and Hyun Song Shin (2004). BIS central bankers’ speeches  5  not straightforward, the difficulties can be overstated”.20 To support his claim, Borio notes that traditional monetary policy also confronts such challenges when interest rates are set on the basis of indicators, such as output gaps or natural interest rates which are unobservable and difficult to measure accurately. It is however commonly accepted that central banks have, to a large extent, surmounted these difficulties. Of course, countercyclical buffers cannot be implemented without inflicting some costs to the economy, but the trade-off involved seems significantly more favourable than is the case with “leaning against the wind” policies. A 2011 study by the Bank of International Settlements estimates that, by reducing the probability of a severe crisis, the benefit of countercyclical buffers is on average 10 times higher than their costs in terms of real output growth per year. V.  The Swiss case  Every central bank in the world faces its versions of the challenges I have mentioned. The Swiss National Bank is no exception.