Politicians and authorities should therefore concentrate on creating an appropriate combination of business conditions. These should be designed in a way that provides the best possible support to the banking industry, so that it can fulfil the prerequisites for a successful future which I mentioned before. Key factors: regulation, stability, privacy, market access What does an appropriate combination of business conditions for the banking industry look like? I would like to highlight four factors. First, relevant and effective bank regulations must be implemented and enforced. Allow me to elaborate on this point. Regulations are relevant if they are targeted at a specific market failure which constitutes the reason for the intervention. At the same time, the regulations must be compatible with international standards. If necessary, a “Swiss finish” must be added. The “Swiss finish” is not because we want to be a model pupil. It is needed in cases where the global minimum requirements do not guarantee the desired level of stability for Switzerland, because of our particular circumstances. Effective regulations mean that the goal which the measures aim to achieve can actually be achieved, and that compliance with the rules can be efficiently enforced and monitored. Finally, it is obvious that regulations are always associated with costs for the entities being regulated. These private costs are justified from an overall economic point of view as long as the regulations are in line with the principles I have already mentioned and thereby help to make the banking industry much more stable.
Today, when rising domestic resource utilisation is beginning to slacken in response to developments in the United States and falling stock markets, the element of uncertainty in our work is highlighted again. All this cautions against attaching undue importance to assessments of the longer run. Another matter that has been discussed a great deal in recent years is how monetary policy ought to handle price movements in assets such as real estate and shares. This is not much of a problem in the normal course of events. Rising house prices, for example, are usually connected with a general economic upswing that may generate increased inflationary pressure and thereby prompt an upward revision of forecast inflation and perhaps a repo rate increase. But what if that does not happen inside our normal time horizon? I personally believe there may still be grounds for adjusting the repo rate if one either foresees a future ‘bubble’ that may show up in inflation in the longer run or is concerned about the consequences for the economy and the financial system when the ‘bubble’ finally bursts. In the light of our experiences when the ‘financial bubble’ burst in the early 1990s, I believe that support for such a line of action could be justified, which of course would require clear motives and arguments. Not an exact science Our preparations for monetary policy decisions consist to a large extent in constructing forecasts.