4  For example, see Chung et al (2011), “Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events” and Vice Chairman Janet Yellen (2011), “The Federal Reserve’s Asset Purchase Program”, remarks at the Allied Social Science Associations Annual Meeting, Denver, Colorado, January 8. 5  TIPS are designed with a floor of zero on the cumulative inflation adjustment that they can realize over the life of the security. Thus, the prices of securities that are similar to each other in most ways but have different amounts of accrued inflation can be used to derive a measure of the value of this floor, which can then be translated into the probability of deflation. 2  BIS central bankers’ speeches  time, though, breakeven inflation rates have risen back to levels more consistent with the FOMC’s mandate, and the perceived risk of deflation has diminished notably. One criticism that has been directed at the LSAP2 program is that it was unable to restore vigorous growth to the economy. I think this is a reasonable observation but not a strong criticism. It is true that the support to growth provided by the asset purchases appears to have been countered by other factors that have continued to weigh on growth. However, the LSAP2 program was never described as such a potent policy tool that it could ensure a return to robust growth and rapid progress toward full employment in all circumstances.
First, a growing share of new mortgage loans in this segment was used in 2018 to finance properties in regions with high vacancy rates. Second, the affordability risks of new mortgages financing residential investment property are high and have continued to rise. Since many of these loans also carry considerable loan-to-value (LTV) risk, they are  1  Cf. FINMA, Annual Report 2018, 4 April 2019. Page 2/3  Berne, 13 June 2019 Fritz Zurbrügg  News conference  particularly vulnerable in a scenario involving a correction in real estate prices and a sharp increase in interest rates. Given the risks I have just described, the SNB continues to take the view that targeted mortgage loan-related measures are necessary in the residential investment property segment. The SNB supports the Federal Council’s proposal to raise the capital requirements for highLTV loans in this segment. Specifically, this would involve increasing the risk weights for loan tranches exceeding two-thirds of the residential investment property’s value. The SNB welcomes the Swiss Bankers Association’s readiness to consider a revision to the selfregulation guidelines as an alternative to the Federal Council’s proposal. Such a revision would reduce the LTV ratio and shorten the amortisation period for new loans financing residential investment property. In the SNB’s assessment, the domestically focused banks hold sufficient capital to cover their risk exposure. Despite a fall in profitability in 2018 as a result of a further reduction in interest margins, they have been able to maintain their capital situation.