SNB head watching fx movements closely - report

ZURICH (Reuters) - Switzerland's central bank is keeping a close eye on the Swiss franc's movements, its head was quoted as saying on Sunday, as markets seek clues on whether it will step in again to stem the franc's rise against the euro.

"The currency fluctuations of the Swiss franc have indeed picked up in the last weeks. The SNB is following these developments on the foreign exchange market very closely," Swiss National Bank chairman Philipp Hildebrand said in an interview published on Swiss website blick.ch on Sunday.

The franc has risen to record levels against the euro since the SNB backed off a pledge to fight an excessive appreciation of the franc at its last monetary policy assessment.

The SNB sold francs for euros for more than a year as part of its fight against deflationary risks, and Switzerland's currency reserves posted their sharpest rise on record in May. The overall currency reserves rose to 232.4 billion Swiss francs (144 billion pounds) that month.

Hildebrand said, however, that there was currently no threat of inflation, despite the amount of liquidity it had pumped into the market.

"At the moment, I see extremely low inflation risks in Switzerland," Hildebrand said in the interview, which was also published in Swiss newspaper SonntagsBlick.

"I have no doubt that we can absorb the high liquidity in time. We will also be able to decide when to do this so that we don't have to worry about inflation in the medium or long term," he said.

TOO BIG TO FAIL

Hildebrand also said there had been progress on the "too-big-to-fail" banks issue. A Swiss government commission has called for the country's two big banks UBS (UBSN.VX) and Credit Suisse (CSGN.VX) to change their structure so that they could be broken up in the event of insolvency, and a report on this issue is due in August.

Swiss newspaper SonntagsZeitung reported there were discussions within the commission that UBS and Credit Suisse should in the future be required to have an equity position two to three times bigger than now, citing a person who has been involved in the discussions ahead of the report's publication.

Switzerland has led the global push for stricter bank rules after it had to bail out UBS, whose risky bets led to more than $50 billion in writedowns and huge losses.

UBS and Credit Suisse together still hold more than four times the country's gross domestic product (GDP) in assets on their balance sheets and had a share of around one third in key domestic markets, making them too big to fail, the SNB said in its financial stability report published last month.

Hildebrand also said in the interview the SNB was concerned about a possible real estate bubble.

"There is no reason to panic, but also no reason for the all-clear," he said.

Head of banking regulator FINMA, Patrick Raaflaub, warned in an interview with Switzerland's NZZ am Sonntag that Switzerland currently had all the ingredients required for a real estate bubble.

"(We have) extremely low interest rates, people who believe real estate is a practically risk-free investment, high demand and strongly rising prices," Raaflaub was quoted as saying.

(Editing by Will Waterman)

($1=1.061 Swiss Franc)