The Swiss National Bank (SNB) has announced its decision to expand liquidity provisions to commercial banks in Switzerland, using mortgages as collateral. The announcement was made on Thursday by Vice Chairman Martin Schlegel, following the bank's decision to maintain its policy rate at 1.75 percent.
The initiative, which was launched in 2019 and implemented via a pilot project last year, will now be available to all banks in Switzerland that have completed the necessary arrangements. The SNB had informed all banks of this new option at the end of July.
Schlegel emphasized the importance of liquidity provisions for banks, citing recent events in the US banking sector and at Credit Suisse (SIX:CSGN) as examples of situations where banks of any size might need significant liquidity quickly. "The aim is to ensure that should the need arise, the SNB will in the future be able to provide liquidity against mortgages as collateral to all banks in Switzerland," he said.
The initiative focuses on mortgages due to their significant presence as an illiquid balance sheet item in the banking system, accounting for approximately 85 percent of domestic credit volume. For banks to obtain liquidity using mortgages as collateral, they must be able to transfer them to the SNB. This requires legal and operational preparations from the banks, including standardizing transfers through a digital process developed in collaboration with SIX Terravis.
The SNB anticipates that banks engaged in mortgage lending will participate in this initiative. The more banks that prepare for this new liquidity provision option, the greater flexibility the SNB will have during times of crisis. This is expected to benefit not only participating banks but also Switzerland's economy as a whole.
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