The Swiss National Bank has announced two measures that will reduce interest payments to banks in the future. These measures come as a response to an abundance of liquidity in the global financial system since the financial crisis, which has made enforcing monetary policy more challenging. Positive key interest rates have been in place in Switzerland since September 2022, allowing commercial banks to benefit from interest payments from the Swiss National Bank.
In order to incentivize banks to trade money with each other and enforce the positive key interest rate on the money market, the SNB pays interest on sight deposits held by banks. By adjusting these interest rates, the SNB aims to achieve an Saron interest rate close to the key interest rate. However, due to recent changes in financial conditions, the SNB is taking steps to realize potential savings.
Firstly, effective July, the minimum reserve ratio will increase from 2.5 percent to 4 percent, requiring banks to hold more sight deposits with the SNB. This measure is expected to result in lower interest payments for banks and save the SNB nearly 400 million francs per year. Secondly, effective immediately, exceptions will no longer be granted when calculating minimum reserve requirements, further reducing interest payments for banks.
While these measures may result in reduced income for some commercial banks, they are necessary for maintaining a stable financial system and ensuring that monetary policy can be effectively enforced by the Swiss National Bank. Additionally, these cost-saving measures will enable the SNB to allocate resources more efficiently and potentially lead to future investments in other areas of economic development.
Overall, these measures demonstrate that even during challenging financial times such as these, central banks must remain vigilant and adaptable in their approach towards maintaining a stable financial system and achieving their objectives while keeping public interests at heart.
