SNB Working on Bank Collateral Rules With Finance Ministry, Finma

(Bloomberg) — The Swiss National Bank is working with the government and its financial regulator Finma on rules that will allow all banks in the country to draw emergency liquidity from the central bank against collateral.

Lenders should “be required to permanently hold ready a certain volume of collateral for the purpose of obtaining liquidity from the SNB,” incoming President Martin Schlegel said at a press conference on Thursday. Whether this will actually happen is “currently under consideration,” he added.

A liquidity crunch was one of the factors that accelerated the final demise of Credit Suisse in 2023. With the government’s backing, the central bank intervened with an ad hoc injection of cash, but that wasn’t enough to stem the crisis, leading to the takeover of the ailing lender by UBS Group AG.

Lenders can already receive cash from the SNB by pledging mortgages, which constitute by far the largest part of loans issued in Switzerland. Under the new framework, banks will be able to draw liquidity against “a broad range of securities, in particular less liquid bonds issued by borrowers with lower credit ratings, as well as securitizations and shares in various currencies,” Schlegel said.

This will extend to all lenders a facility that had so far been reserved to large banks such as UBS. To contain risks, the SNB will implement a haircut on pledged collateral, he added.

“The possibility to draw liquidity from us is not for everyday situations,” Schlegel said in Zurich. “It’s rather a so-called backstop facility that banks can tap when they have a sudden or large liquidity need.”

–With assistance from Alexander Weber and Jeff Black.

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