In the case of the SNB, foreign currency investments have increased substantially as a result of foreign exchange interventions. This has exposed the SNB to a substantial exchange rate risk, which is a consequence of monetary policy considerations. Consequently, it is one that the SNB must take. We reduce the risks through suitable diversification of our foreign currency investments. However, the primacy of monetary policy means that our scope for diversification is limited.4 Additional risks in connection with zero interest rate policies can result from the fact that it has become very difficult for investors to achieve a satisfactory return on bonds. There is a danger that investors seeking an attractive yield will become imprudent and take excessive risks. The longer a low interest rate phase, the greater the danger of unintended consequences in the form of speculative price developments and misallocations. We have been observing a substantial increase in real estate prices in Switzerland for some years now, with strong growth in mortgage loans. The SNB has repeatedly expressed its concern over these developments. Prolonged low-interest phases also present the insurance industry and pension funds with considerable challenges. It goes without saying that central banks continually evaluate and reassess the effects and risks of monetary policy in the light of the most recent data. This applies in normal times and even more so in exceptional situations such as we have experienced over the past few years.
Consequently, the SNB will suspend its issuance of SNB USD Bills. The last auction will be held on 21 June 2010. As has already been mentioned by Philipp Hildebrand, the extent of foreign exchange interventions are leading to a higher risk concentration for the SNB. However, monetary policy considerations remain paramount. Furthermore, we need to keep the overall picture in mind. Thus, since our portfolio is well diversified, no loss has been recorded overall since the beginning of the year. This is due, in particular, to investments in foreign currencies other than euro as well as our gold investments, which also constitute one of our main sources of risk. What is more, the important time period is the long term and over that horizon potential exchange rate losses should be offset (at least in part) by the return on foreign exchange investments. Finally, it must be borne in mind that the SNB has set aside substantial provisions to absorb any possible future losses. Transition from a liquidity deficit to excess liquidity in the financial system The unconventional measures taken by the SNB to combat the impact of the crisis and to avert deflation risks have led to an ample supply of liquidity to the financial system. Therefore, we have witnessed a gradual shift from a liquidity deficit to a situation characterised by excess liquidity. In fact, before the crisis, banks had to obtain liquidity from the SNB in order to satisfy their minimum reserve requirements.