To this end, they issued further bail-in bonds, which can be converted into equity in the event of impending insolvency. On the other hand, the two big banks have implemented key organisational measures. For instance, they have both set up Swiss subsidiaries that contain their systemically important functions, including, in particular, domestic deposit and lending business. In order to resolve the ‘too big to fail’ issue in Switzerland, more progress also needs to be made in the area of resolution. This will involve, first, further improvements in gone-concern loss-absorbing capacity in a gone-concern perspective, as stipulated in the regulations and, second, further progress in drawing up robust resolution plans. By end-2019, the big banks will need to demonstrate that they would be able to maintain their systemically important functions in Switzerland without interruption in the event of impending insolvency. The resolution plans will also need to meet foreign regulatory requirements. Domestically focused commercial banks  I will now turn to domestically focused commercial banks, whose main business is in lending and deposit-taking. I would like to highlight three key developments at these banks. First, domestically focused banks further increased their risk exposure in 2016. Mortgage growth at these banks remained strong. Moreover, their interest rate risk exposure from maturity transformation continued at high levels. In addition, they took on greater affordability risks and the share of new mortgages with a high loan-to-income ratio reached a new peak. All this took place against the background of high imbalances on the Swiss mortgage and real estate markets.
William C Dudley: Asset bubbles and the implications for central bank policy Speech by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Economic Club of New York, New York City, 7 April 2010. *  *  *  Thank you for that kind introduction. Today I want to tackle a difficult subject: How should central bankers deal with potential asset price bubbles. As always, my remarks do not necessarily reflect the views of the Federal Open Market Committee or the Federal Reserve System. As I see it, we need to reexamine how central banks should respond to potential asset bubbles. After all, recent experience has underscored the fact that poorly regulated financial systems are prone to such bubbles and that the costs of waiting to respond to an asset bubble until after it has burst can be very high. Today, I will try to define some of the important characteristics of asset price bubbles. I will argue that bubbles do exist and that bubbles typically occur after an innovation that has created uncertainty about fundamental valuations. This has two important implications. First, a bubble is difficult to discern and, second, each bubble has unique characteristics. This implies that a rules-based approach to bubbles is likely to be ineffective and that tackling bubbles to diminish their potential to destabilize the financial system requires judgment.