At the Bank of England we do still consider that the stability of the financial system depends crucially on the stability of the banking system. Banks are at the heart of the payments system, they are the principal source of funds for many businesses, and they are an important savings medium for a large part of the population. The regulatory framework in turn affects the behaviour of banks, making it essential to get it right. It needs to create both the right incentives, and establish the right level of buffer - in the form of capital - to protect the system. We fully support the Basel Committee’s objective of updating the 1988 Accord to make it more comprehensive and risk sensitive. And as a member of the Basel Committee, the Bank is working alongside the FSA to ensure that these objectives are delivered. Importance of risk sensitive capital charges I am aware that some commentators have questioned the aim of making the system reflect risk in a more differentiated way. One argument is that this will make capital charges procyclical, so that economic downturns or external shocks are amplified by the regulatory demand for higher capital. There is a concern that the consequences could be particularly severe in the case of lending to emerging markets, where rating changes have sometimes lagged the onset of crises. This is certainly a risk, and one which we have to take seriously. Clearly there could be macroeconomic implications, both domestically and internationally, possibly on a systemic scale.
The transition from Libor to SARON  Let me now turn to the SNB policy rate and the transition away from Libor. As Thomas Jordan has explained in his remarks, we are introducing the SNB policy rate as the future of Libor is uncertain. This adjustment does not entail any change in the SNB’s current monetary policy stance. However, the move away from Libor presents the financial markets, and those operating in them, with a very challenging task. I would like to discuss three aspects of this transition in greater detail: first, the choice of the Swiss Average Rate Overnight (SARON) as the alternative reference rate; second, the importance of using SARON in financial products and developing a liquid, SARON-based yield curve; and third, the issue of how interest payments should be calculated over longer periods. As regards the first aspect – the choice of a new reference rate: In Switzerland, the National Working Group on Swiss Franc Reference Rates (NWG) recommended SARON as the alternative as early as 2017. Switzerland, like other currency areas, has thus chosen an overnight rate as its preferred alternative to Libor. SARON has been in existence for ten years and, unlike Libor, is based on trades and binding quotes for overnight transactions on the secured Swiss franc money market. This market segment is broader and more liquid than the unsecured money market on which Libor is based.