BIS central bankers’ speeches  1  •  If the sector continues to grow twice as fast as the economy over the next five years – not easy but we aim to – financial services will make up 14% of the economy in 2020, compared to 11% in 2010. Now, the bad news. The financial sector is inherently vulnerable to risk and volatility. •  As crisis after crisis has shown, problems in the financial sector quickly become problems for the entire economy. •  The Global Financial Crisis imposed a tremendous cost with the global economy estimated to have lost 5 percentage points of growth between 2007 and 2009, not to mention the human dimension in jobs lost and companies closed. •  As an international financial centre – connected to the global network of financial flows and playing host to hundreds of foreign financial institutions – Singapore is particularly vulnerable to contagion and shocks from abroad. The global financial industry is facing unprecedented headwinds. •  We are looking at a prolonged period of low growth and low interest rates – a combination that spells reduced earnings and increased risks for most financial institutions. •  The regulatory and compliance burden has increased significantly, following wideranging regulatory reforms in the wake of the global financial crisis. •  The reforms were necessary to help make global finance safer; but their cumulative effects do pose a challenge for the profitability of financial institutions, especially banks. •  Unprofitable banks are not necessarily safe banks.
In particular, stricter discipline is observed in Switzerland in terms of compliance with credit conditions, and price swings have been considerably less extreme. Moreover, there is no evidence to date of any upsurge in speculative trends on the Swiss property market. At present, neither a general property bubble nor any general mortgage problem could probably be said to exist. Although the banks have largely drawn the correct conclusions from the real estate crisis of the 1990s with regard to lending in Switzerland, it is still essential – given the losses on the US real estate market – to carefully assess risks when granting loans (including mortgages) in Switzerland too. BIS Review 150/2007  1