SNB Cuts Limit for Banks to Get Full Interest on Parked Cash

(Bloomberg) — The Swiss National Bank will lower the threshold factor for remunerating sight deposits — making a minor adjustment to how much interest banks earn for parking cash with it.

The factor determining which part of lenders’ sight deposits accrues the full SNB interest rate will be cut to 22 times their minimum reserve requirement, down from 25 times now, according to a statement published Monday.

Switzerland’s central bank increased minimum requirements from July — a step that lifted the amount up to which full interest of 1.25% is earned, since the upper threshold is a multiple of the minimum holdings. Monday’s move partially reverses this by reducing the multiplication factor.

Sight deposits held as minimum reserves earn no interest, while holdings in excess of the threshold are remunerated at the SNB’s policy rate, discounted by a half-point. That amounts to 0.75% at present.

The action announced Monday won’t significantly change how much interest lenders earn, according to Raiffeisen Switzerland economist Alexander Koch, who said it will only bring thresholds back to previous levels as July’s change takes effect over three years. This will probably trigger further reductions of the factor over time, he said.

In contrast, last month’s step caused an annual revenue hit of about 300 million francs ($350 million) for Swiss banks, Koch estimates. 

Officials said that with Monday’s change, they’re “ensuring that the implementation of monetary policy remains effective and supporting an active money market,” according to the SNB statement. “The adjustment has no impact on the current monetary-policy stance.”

(Updates with economist starting in fifth paragraph.)

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