The cumulated loss at the end of the third quarter (since 1 October 2008) was USD 4.4 billion. Equity capital reported thus remains negative, though this loss was entirely covered at the time by the secondary loss protection – the warrant for the purchase of 100 million UBS shares at nominal value. By the end of the StabFund’s first financial year it will have largely completed the build-up of its operating activities. In the last few months, following the asset transfer phase between December 2008 and April 2009, the asset management process was set up, risk monitoring and financial reporting expanded, and an internal control system and operational risk management introduced. These processes will be further improved next year, with asset management taking on a key role. While the intrinsic values of the assets represent a key element in managing the portfolio, the process must not be merely mechanistic. Now that it has been possible to sell off some of the more liquid assets over the last few months, attention will focus more closely on two tasks: minimising the larger concentration risks, and ensuring that – as the portfolio is disposed of – the best possible equilibrium is maintained in various respects, including the degree of liquidity of its holdings. Broadening participation in the Swiss franc repo market The unsecured money market collapsed when the financial crisis broke out in August 2007 and it has not properly recovered to this day.
The use of unconventional measures has also changed the nature of part of the liquidity created. Liquidity resulting from repos and currency swaps is temporary: it flows back automatically when the transactions are not renewed. Liquidity created by acquiring foreign exchange and Swiss franc bonds, conversely, is permanent. We expect to keep the foreign exchange and bonds we have purchased on the SNB’s balance sheet for an extended period. As part of the impending normalisation of monetary policy, SNB Bills – introduced a year ago – will therefore play a central role. Liquidity absorption will mainly be conducted through the issuance of SNB Bills. Consequently, part of the balance sheet will in future be funded with interest-bearing debt capital. Moreover, the expansion of the balance sheet will substantially increase the SNB’s credit and currency risks. Strengthening the SNB’s provisions The financial crisis has highlighted how important it is for the SNB to have a solid equity capital buffer. Without it, the SNB would be unable to carry the risks on its currency reserves internally – nor would it be in a position to take the measures to stabilise the financial system that proved essential in the financial crisis. Equity capital, furthermore, is central to the independence and credibility of the SNB. In spite of the extensive crisis measures we have taken, the SNB’s balance sheet is as robust as ever – though its financial stress resistance is heavily dependent on the distribution reserve, which is high at present.