Selecting Barcelona as the venue for ISDA’s discussions offers us a chance as well to celebrate the ancient and the innovative, the old and the new, in financial services. This conference, for example, will address some of the most sophisticated products in banking and finance and the risk management practices, legal developments, and technological advances that are emerging to support these new businesses. At the same time, our discussions here in Barcelona will remind us that we must all always monitor and control the fundamental – and traditional – risks involved in our activities. Credit risk, market risk, and operational risk have always been with us in various forms, although they have increased in complexity over recent years. What has changed dramatically, however, is our ability to measure and monitor those risks more comprehensively than our predecessors ever could. We have, moreover, improved our ability to manage or transfer those risks, and I would like to share with you today some thoughts on work underway in the financial community in this regard. There are three topics that I would like to address in my intervention. I will begin by sharing first, in my personal capacity, some thoughts regarding the need for standards to evolve and keep pace with the times, whilst ensuring that new standards are not unduly burdensome and do not hinder firms’ abilities to innovate.
Though the current liquidity levels in the Swiss franc money market are still extremely high, and interest rates are fluctuating around zero, conditions on the money markets have slowly started to normalize and extremely negative rates have disappeared. This is reflected in the recent increase of the three-month Libor, which can be ascribed to a normalisation of the rate’s risk premium and should therefore not be seen as a change in monetary policy. Though few loans are currently being concluded on the interbank market, the Libor remains an important benchmark for many credit transactions in the economy. Concluding remarks The period of low interest rates in which we live is the outcome of cyclical and secular circumstances which are unlikely to last forever. Even if we accept the “savings glut” hypothesis, the demographical and regional factors to which it refers could soon lose relevance. While the call for deleveraging should prompt increased savings in advanced economies, the demographic forces in the west are likely to have an opposite effect on the supply of savings. Similarly, the maturing of emerging markets in the east should lead to smaller current account surpluses and to a gradual reduction in the build-up of precautionary reserves by public authorities. It is also clear that the increased risk appetite associated with the “Great Moderation” was, at least to some extent, based on over-optimistic assumptions.