SWISS-RATES/ (HIGHLIGHTS)

"Consequently, we need to be very conscious of the fact that measures may be needed over and above any international standard.

"Internationally recognised regulations for the dissolution of systemically important institutions that can be enforced under any jurisdiction are no doubt a splendid objective.

"In the real world, however, different national regulations will continue to exist in this field. From our point of view, reciprocal recognition of national regulations that are mutually compatible, and the associated adjustment of structures and processes, are a more realistic objective.

CENTRAL CLEARING

"...in the event of a bank collapse, a central counterparty guarantees that it will fulfil the commitments it has entered into with respect to the other market participants, thereby eliminating the traditional domino effect.

"That is why...the SNB is supporting the banks' ongoing efforts to clear a larger part of the enormous over-the-counter derivatives market through central counterparties.

"These central counterparties come at a cost, since it goes without saying that they must run a very sound risk management system.

"For even a central counterparty could be threatened with failure. Since the consequences of such an event would be catastrophic, central counterparties need to command sufficient financial resources to ensure that they can withstand the failure of the largest market participants, even in extreme market conditions."

CRISIS PREVENTION

"At the international level, the implementation of preventative measures is already well advanced, in that the Basel Committee on Banking Supervision -- in coordination with decisions by the G20 and the FSB -- has decided on important measures in the fields of capital and liquidity regulation. The consultation package on this matter will be published in early 2010.

"The Basel Committee is proposing a global minimum standard for liquidity regulation. This is to ensure that financial institutions build up a liquidity buffer which allows them to remain liquid in short-term and medium-term stress scenarios.

"A new liquidity regulation is currently in the test and calibration phase.

"The new regulation is due to come into force in the second quarter of 2010.

SNB BOARD MEMBER THOMAS JORDAN

INTERVENTION

"We cannot stabilise the dollar against the franc. our focus is clearly on the euro.

"Overall we have certainly spent over 40 billion Swiss francs in the interventions.

"There is no reason to comment (about target levels for interventions). We have had success with the way we have communicated.

"We intervene when we think it is necessary to prevent an excessive appreciation.

"We want to have big effect of the interventions. Therefore we are active in both currencies. We buy dollar and euro after one another or at the same time to reach our goal as effectively as possible. Our goal is preventing a rise against the euro but we do that via various currencies."

"We have no reason to define what excessive means. We have been successful with our policy and it has proven us right."

FX, BOND BUYS:

"To date, bond purchases have totalled around 3 billion Swiss franc. However, we have hardly made any purchases since mid-September due to the substantial improvement on the Swiss franc bond market.

"Liquidity created by acquiring foreign exchange and Swiss franc bonds, conversely, is permanent. We expect to keep the foreign exchange and bonds we have purchased on the SNB's balance sheet for an extended period.

"As part of the impending normalisation of monetary policy, SNB Bills -- introduced a year ago -- will therefore play a central role.

"Liquidity absorption will mainly be conducted through the issuance of SNB Bills. Consequently, part of the balance sheet will in future be funded with interest-bearing debt capital. Moreover, the expansion of the balance sheet will substantially increase the SNB's credit and currency risks.

REPO SYSTEM:

"The SNB depends on a liquid Swiss franc money market for the efficient implementation of its monetary policy.

"This is why, in addition to domestic banks, foreign banks were admitted to the Swiss franc repo market as long as ten years ago.

"From 2010, the SNB will open the repo market to financial market participants in Switzerland (including Liechtenstein) that do not enjoy the status of banks.

"However, these new participants will have to be supervised by FINMA (or the regulatory authorities in Liechtenstein), and they must be genuinely active in the Swiss franc money market.

"Furthermore, they will have to guarantee that business will be transacted in a professional manner. The initial candidates are likely to be insurance companies with significant treasury activities in Swiss francs, and possibly managers of Swiss franc money market funds."

For a table with SNB's forecasts ... [nWEA5002]

For latest stories on the SNB ... [RTRS-LEN-SNB-INT]

For stories on the economy ... [RTRS-LEN-MCE-ECI]

For a chronology on rate changes since 2000 ... [nSNBCHRONO]