Swiss Banks Face $440 Million Hit on Higher SNB Reserve Rule

(Bloomberg) — The Swiss National Bank is requiring banks to hold more money at the institution, a move that will cut how much interest it pays to them. 

The central bank is increasing the minimum reserve ratio to 4% from 2.5%, it said in a statement on Monday.

As a result of the changes, the country’s lenders including UBS Group AG face a hit to their revenue of as much as 400 million francs ($440 million), according to an estimate from Raiffeisen Switzerland economist Alexander Koch. 

For UBS, it’s the second regulatory setback in Switzerland this month. New rules proposed by the government could end up increasing the lender’s capital requirements by as much as $25 billion, Finance Minister Karin Keller-Sutter has indicated. 

UBS’s shares dropped as much as 1.99% on Monday and were trading 1.4% lower at 11:42 a.m. in Zurich. 

The SNB also announced Monday that it is changing how banks must calculate their minimum reserve requirement, by obliging them to include nearly all liabilities arising from “cancellable customer deposits,” compared with just a fifth previously. 

The changes, which take on July 1, effectively cut the SNB’s interest payments as reserve requirements aren’t remunerated. The decision to stop paying interest on minimum reserves was taken last year, and enlarging these cuts the amount that banks can earn on their deposits further.

SNB President Thomas Jordan flagged in November that revising the requirement was under consideration.

“These adjustments will ensure that implementation of the SNB’s monetary policy remains effective and efficient,” the SNB said in the statement on Monday. “The amendments will not affect the current monetary policy stance.”

The SNB is taking a step the European Central Bank avoided when it reviewed its operational framework over the past months. The Frankfurt-based institution kept its reserve requirements unchanged at 1%, after a long debate that saw hawks like Austria’s Robert Holzmann argue in favor of an increase to as high as 10%.

The ECB recorded its first loss in two decades last year following an unprecedented ramp-up in borrowing costs to tackle inflation. Similarly, the SNB reported losses in 2022 and 2023.

–With assistance from Catherine Bosley and Jana Randow.

(Updates with estimate on hit to banks from third paragraph)

©2024 Bloomberg L.P.