Theory and practice of the financial markets - a fruitful alliance

Bruno Gehrig, Member of the Governing Board

Remise du Prix «Banque et Finance» de la Banque Cantonale de Genève, Geneva, 24 November 1999, 24.11.1999

The theory of financial and capital markets has influenced and changed their practical operation much more enduringly than other fields of economic teaching. This also applies to Switzerland, which has the most up-to-date trading and settlement systems and a wide range of modern financial instruments.

The globalisation of markets and portfolios has increased the risks of interconnection. Technology embodies such risks, while the experience that in certain situations most market participants behave in the same way, with the resultant adverse influence on market liquidity, is another risk aspect. The herd effects that have been noted and the reactions to shocks are extremely interesting research objects for academic economists. In Switzerland, the introduction of repo transactions and intraday credits are a further two steps conducive to the stability of the system. In an international context, the main efforts are concentrated on a project aimed at eliminating the settlement risks of foreign exchange transactions. Economic analysis has a major contribution to make in developing an efficient and secure financial system.