A changing role for central banks?

September 22, 2010
Welcome Event Master of Banking and Finance, St. Gallen

Summary

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.

Download file now

The file can be downloaded with the button below.

Additional files

Related content

Author(s)

  • Thomas Jordan
    Vice Chairman of the Governing Board

Your settings

Required: These cookies (e.g. for storing your IP address) cannot be rejected as they are necessary to ensure the operation of the website. These data are not evaluated further.
Analytics: If you consent to this category, data such as IP address, location, device information, browser version and site visitor behaviour will be collected. These data are evaluated for the SNB's internal purposes and are kept for two years.
Third-party: If you consent to this category, third-party services (used, for example, to add social multimedia content to the SNB's website) will be activated which collect personal data, process these data, disclose them abroad - worldwide - and place cookies. The relevant data protection regulations are linked in the 'Privacy statement for the website of the Swiss National Bank'.

Choose your preferred settings:

This website uses cookies, analytics tools and other technologies to provide requested features, content and services, to personalise the content shown, to provide links to social media, and to analyse the use of the website in anonymised form for the purposes of improving usability. Personal data are also disclosed abroad - worldwide - to video service providers and the analytics tools of these providers are used. More information is available under 'Manage settings'.