for instance 2021 stress tests conducted by the EBA (EBA publishes the results of its 2021 EU-wide stress test | European Banking Authority (europa.eu), consulted on 21 March 2022), and the Fed (Federal Reserve Board - Federal Reserve Board releases results of annual bank stress tests, which show that large banks continue to have strong capital levels and could continue lending to households and businesses during a severe recession, consulted on 21 March 2022). 10 Cf. IMF, Global Financial Stability Report, October 2021. 11 Cf. SNB, Financial Stability Report, 2021, chapter 2.2.  corrections in real estate prices represent a key source of risk from a financial stability perspective. In several countries, real estate price growth has increased since the start of the pandemic, and has been higher than can be explained by fundamental factors. For instance, the residential price-to-rent ratio, a simple measure of real estate valuation, lies above its long-term average in many countries. 12 This has been accompanied by higher mortgage lending and, in some countries, by an increase in lending risks. 13 Overall, these developments have made real estate and mortgage markets more vulnerable to shocks, such as a sudden increase in interest rates or a deterioration in economic prospects. There are several reasons behind this marked increase in real estate prices. They include tight housing supply, a probable increase in housing demand due to the pandemic itself, and the historically low interest rates that have prevailed in recent years.
3 These requirements were further tightened in 2014 and 2019, in response to increasing vulnerabilities in the mortgage and residential real estate markets. Furthermore, Switzerland has a flexible regulatory framework that allows for both a broad and a sectoral application of the CCyB. In 2013, the Federal Council decided to activate a sectoral CCyB (SCCyB), following a proposal by the SNB. We deemed it to be the most costeffective response, given that vulnerabilities at the time – and even now – were concentrated in the residential real estate and mortgage markets. 4 The SCCyB was increased in 2014, deactivated at the onset of the pandemic, and has just recently been reactivated to a higher level. The SCCyB increases capital requirements associated with domestic residential mortgage loans while leaving those for other exposures unchanged. The sectoral focus therefore helps to minimise potential side effects on other credit segments and at the same time ensures an increase in overall banking sector resilience, since mortgage claims are the largest asset on Swiss banks’ balance sheets. 5  Experience with macroprudential instruments so far All the instruments we have been discussing have become part of the macroprudential toolkit in many economies since the GFC. Now over ten years on, we can draw first conclusions about their effectiveness, which is a prerequisite for their correct implementation. Let me note, however, that the assessment is still ongoing.