The stable economic growth and low inflation of the last two decades could not prevent the emergence of vast imbalances in the global financial system, as the financial and economic crisis clearly showed. Such massive economic shocks are bound to have an impact on how central banks work. Nevertheless, ensuring price stability remains the top priority of central banks.
The crisis made it evident that central banks have an effective set of instruments that can be used to mitigate the negative impact of financial crises. The unconventional measures used in this regard also proved to be effective. Yet despite these measures, the cost of the crisis remains enormous. One central conclusion, therefore, is that more attention needs to be paid to crisis prevention in order to improve the stability of financial systems. However, monetary policy instruments are only suitable up to a point in countering the emergence of financial imbalances. Hence, a different approach is needed. Strengthening macroprudential regulation is one plausible option. Macroprudential regulation takes account of systemic risks in the financial sector through action geared to reducing such risks. As yet, however, there is little experience of this type of regulation. It is therefore vital that we act prudently and gradually when implementing any new measures, and that we give ourselves adequate time. The first step is to define clear and realistic mandates and objectives and to evaluate possible instruments. Collaboration between the various authorities involved – both nationally and internationally – is also of crucial importance.
Overall, we need to create conditions that allow the timely application of suitable instruments to counter emergent financial instabilities. These instruments would essentially supplement our set of monetary policy instruments. Within this framework, the SNB would be able to make an optimum contribution to ensuring that both objectives – price stability and financial stability – can be simultaneously addressed.
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