There has been a SARON swap market since 2017, and SARON is establishing itself as the reference rate for loan products. Over the course of the current year, several banks have begun offering mortgages and corporate loans that are based on SARON rather than Libor. The more frequently such loan products appear, the more liquid the SARON swap market should become. We expect the SARON swap curve to gradually take over the role of the Libor swap curve. However, we have a fair way to go here, as liquidity on the SARON swap market is still thin and banks still use the Libor swap curve to price most loans. The National Working Group on Swiss Franc Reference Rates (‘NWG’ for short) is charged with facilitating the transition from Libor to SARON. The SNB has been supporting the NWG’s work in a coordinating capacity for several years. The NWG judges that the transition to SARON has advanced well so far. At the end of September, the NWG noted that it expects Swiss franc Libor fixing to be discontinued at the end of 2021 – a mere 14 months from now. To be sure, much remains to be done for these efforts to translate into deep and liquid SARON-based markets. The remaining changeover work must be undertaken expeditiously, as time is running short. We will now move on to the core topic of this speech – how we steer money market rates in negative territory.
5  SECO, 2006, "Kunjunkturtendenzen Winter 2006/07", page 48. 6  See Ben Bernanke, 1981, “Bankruptcy, Liquidity, and Recession”, American Economic Review 71, 155-159, or Ben Bernanke, 1983, “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression”, American Economic Review 73, 257-276. 2  BIS Review 141/2007  make sure that banks take appropriate precautions to prevent the occurrence of disasters. It is well known that those protected by insurance policies can have lower incentives to prevent damages than those who remain unprotected. One of our goals, therefore, is to counter this so-called “moral hazard” risk. More generally speaking, central banks are concerned with a broad range of market failures, of which moral hazard is just one prominent example. Other market failures include coordination problems between market participants. The classic examples of such coordination problems are bank runs, where the mere belief that a bank faces insolvency problems will render the bank insolvent – even though it may be fundamentally sound. Another important source of market failures are externalities. For instance, in case of a banking crisis, a large part of the costs of the crisis are borne by households and firms. These costs are not fully taken into account by banks when they determine their risk profile. To banks, it is: “Tails I win, heads you lose.” As a result, banks’ profit-maximizing risk choices are typically not socially efficient. There can therefore be an inbuilt tendency for “excessive risk taking”.