The largest firms must be prepared for a rapid and orderly resolution under the US Bankruptcy Code.6 Among other things, these firms must now also ensure that critical activities or services provided to the market will not be disrupted in the event they find themselves in recovery or resolution. Moreover, if an institution fails, there must be sufficient tools to manage its failure in a way that reduces the chance that its failure will cascade systemically through the financial system. In other words, if one institution gets a cold—or worse—it should not become an epidemic. The Fed’s use of Section 13(3) during the crisis was not uncontroversial. Concerns were expressed about moral hazard—that the Fed was somehow “bailing out” troubled institutions and that this would only lead to excessive risk taking in the future.7 As a result of this concern and others, Congress amended Section 13(3) to prevent the Fed from engaging in the kind of institution-specific lending that was directed at Bear Stearns and AIG. Going forward, the Fed may only lend under Section 13(3) as a part of a broad-based program directed at providing liquidity to the financial system and not to aid an individual failing firm.
The SNB’s mandate is still to ensure price stability. The minimum exchange rate has decreased the deflationary and recessionary risks associated with a massively overvalued currency. It is entirely in line with our mandate. Furthermore, there is no risk of inflation in Switzerland for the foreseeable future. However, the SNB does recognise that the long period of low interest rates we are experiencing constitutes a danger to the stability of the financial system. The domestic credit and real estate markets are vibrant and there are concerns about the possible build-up of imbalances, which could eventually lead to price corrections and substantial losses in the Swiss banking sector. There is no doubt, however, that, in the current context of global economic indications of downside risks to the Swiss economy, current interest rate levels and the minimum exchange rate are vital. Any concerns about the housing market must, therefore, be addressed by alternative means. The SNB thus advocates the introduction of a “countercyclical capital buffer”, a macroprudential tool targeted at the specific situation we are experiencing. If the SNB’s recommendations are implemented, the banks will be legally obliged to meet specific equity capital requirements as soon as certain indicators on the real estate and mortgage markets show signs of unsustainable growth. The concept of central bank independence is widely recognised in our country. The fact that an independent monetary policy best serves the interests of the country is rarely disputed.