As to the more advanced features under Basel II (such as the internal ratings-based systems), there is occasionally an excessively mechanistic view of what is entailed. This is not a more complicated formula for calculating capital requirements. What the more advanced approaches under Basel demand, and recognise, are more sophisticated internal risk-management systems. Hence, and as the word “management” indicates, the systems should be effectively used and integrated into the bank’s everyday analysis and decision-making at all levels. Capital requirements calculated in a more sophisticated manner, and which encourage better riskmanagement techniques, should be underpinned by a suitable policy for capital. It does not suffice to have a sufficient and even comfortable overall volume of capital: what is needed is a strategy for capital that takes into account factors such as the permanence and quality of capital, market accessibility and the balance between shareholder remuneration and the institution’s capitalisation. Too often, formulas for increasing capital through the use of subordinated debt or hybrid instruments to finance business expansion are resorted to, while at the same time the build-up in reserves from retained earnings slows. It is crucial for banking institutions to evaluate decisions on the level and composition of capital from a strategic and medium-term perspective. These thoughts on the challenges to be faced would be incomplete without addressing the corporate governance of credit institutions. The Banco de España has a particular interest in this area as it considers it a basis for sound risk-management.
Since 15 January, we have repeatedly and thoroughly explained our reasons for discontinuing the minimum exchange rate and introducing negative interest on sight deposits at the SNB. Upholding the minimum exchange rate was no longer sustainable given the changes taking place in the international arena and the sharply diverging monetary policy stances of the world’s major currency blocks. In formulating our monetary policy, we are confronted with an exceptionally complex situation on international financial markets. What is more, the global economy is still grappling with the after-effects of the financial and economic crisis, not least in the form of high levels of uncertainty. These are the realities that the SNB – and the Swiss economy – are facing. Turning a blind eye is not an option. In this environment, we were aware that the discontinuation of the minimum exchange rate would cause Switzerland’s economy to slow. While the data from the first quarter confirm that this slowing process is now underway, the country’s economic development since 15 January has been broadly in line with our expectations. Our monetary policy is geared towards this challenging set of circumstances and is currently guided by our willingness to take an active role in the foreign exchange market and apply negative interest rates. This two-pronged approach is designed to weaken the Swiss franc. The SNB’s interventions in the foreign exchange market, which feed more liquidity into the banking system, reinforce the effect of both of these measures.