Special topics
Media representatives and any other interested parties can consult this page to find out about the SNB’s viewpoints on political initiatives and other special topics.
The SNB's role as lender of last resort
The SNB may grant liquidity only against collateral
- Even in an acute crisis situation, the SNB must adhere to the framework established by law and comply with the allocation of roles to authorities envisaged therein.
- In accordance with the National Bank Act, the SNB may only provide a bank with liquidity against collateral.
- It is therefore also not permitted for the SNB to give unlimited financial assistance to a bank in a 'whatever it takes' approach.
- Only the Federal Council and/or Parliament can decide on guarantees for a bank.
The SNB is not overly conservative regarding the collateral it accepts
- The SNB accepts a broad range of collateral, the scope, quality and risk-based haircuts of which are comparable with that of any other central bank.
- To allow the eligible collateral to be deployed, it is crucial that the banks make the legal and operational preparations for its transfer to the SNB. This transfer is important so that the collateral will actually be available to cover the SNB's claims in a bankruptcy.
- The preparations made by Credit Suisse were insufficient. In its preparations, Credit Suisse had not exhausted the existing potential for liquidity assistance from the SNB.
The SNB showed no restraint in its provision of liquidity to Credit Suisse
- The SNB fully performed its role as lender of last resort. There has never been a situation where the SNB refused a request for liquidity.
- Altogether, the SNB provided Credit Suisse with CHF 168 billion in liquidity. This was the largest amount of liquidity assistance ever provided to a single bank anywhere in the world.
- The SNB's willingness and ability to provide liquidity were crucial in managing the acute crisis at Credit Suisse and thus in avoiding a financial crisis with serious economic consequences for Switzerland and the rest of the world.
- As lender of last resort (LoLR), the SNB can provide emergency liquidity assistance (ELA) in crisis situations to banks which are no longer able to refinance their operations on the market. The SNB thus makes an important contribution to the stability of the financial system within the framework of its mandate.
- A key objective of the LoLR function is that banks which are essentially solvent and viable should not face insolvency in the event of considerable outflows because they are unable to convert their illiquid assets to cash in time or are only able to do so at high cost. In its role as LoLR, the SNB therefore also accepts illiquid assets in particular as collateral, specifically loans.
- A bank can only obtain liquidity from the SNB if it is solvent and has access to sufficient collateral. All comparable central banks require this.
- The SNB takes its task as LoLR seriously and actively performs this role. It has invested substantial resources in appropriate crisis preparedness. It was also thanks to regular tests with banks that it was possible, in March 2023, to provide liquidity assistance to Credit Suisse in both Swiss francs and foreign currencies in a timely manner against the bank's prepared collateral.
- The granting of unsecured loans - and thus the decision whether to support a bank incorporated under private law with public funds on a non-collateralised basis, with the attendant risk of loss for the public sector - must be controlled by government and parliament.
- Under the National Bank Act (art. 9 para. 1 (e) NBA), the SNB must demand sufficient collateral in the case of liquidity assistance. The legislators' requirement that the SNB may only lend to banks on a secured basis corresponds to international standards and is based on the proven concept of the division of roles between the central bank and government/parliament.
- In connection with the crisis at Credit Suisse, emergency law created the basis for the SNB to provide additional emergency liquidity assistance with preferential rights to repayment in bankruptcy proceedings over other creditors ('ELA+'). This type of loan was created as an emergency solution exclusively for the specific crisis at Credit Suisse. In this particular case, the value of the privileged creditor status at the time ELA+ was deployed was considered sufficient for the credit risk assumed.
- ELA+ was provided within the clearly defined framework of the package of measures put together in the context of the acquisition of Credit Suisse by UBS. The combination of ELA and ELA+ served to create the necessary time window until a comprehensive solution to the crisis of confidence could be worked out. Also included in this solution was the federal default guarantee of up to a maximum of CHF 100 billion provided to the SNB to secure liquidity assistance loans to Credit Suisse (public liquidity backstop, PLB). Without ELA+, Credit Suisse would have become insolvent before this comprehensive solution came into effect.
- The SNB bases its decision regarding eligible collateral on the assets primarily available in the banking sector. Its aim is for banks, with appropriate preparation, to be able when necessary to obtain as much liquidity from the SNB as possible against collateral, particularly illiquid assets.
- A prerequisite for this is that it must be legally possible for the bank's assets to be transferred to or pledged in favour of the SNB. Only then can they be used as collateral. The availability of eligible ELA collateral hinges on the banks' willingness to make the appropriate preparations. The universe of eligible collateral is reviewed by the SNB on an ongoing basis and developed in dialogue with the banks.
- Depending on the systemically important bank in question, mortgage loans constitute some 85-95% of domestic credit volume in Switzerland. Mortgage claims are eligible as collateral provided the underlying real estate assets are located in Switzerland. The SNB accepts mortgages both on residential properties (single-family houses, condominiums and apartment buildings) and on commercial properties. They may be mortgages granted to private individuals or to companies. In its role as lender of last resort, the SNB thus accepts a much broader range of mortgages than other market participants.
- Besides high-quality liquid assets (HQLA), the universe of accepted securities comprises less liquid bonds issued by borrowers with lower credit ratings, as well as securitisations and shares in various currencies. These securities are particularly useful if a bank no longer has access to the secured refinancing market or if there is a sharp reduction in the liquidity of certain asset classes.
- The SNB cannot directly accept foreign loans due to their high local legal and realisation risks. However, the SNB does accept foreign loans if they are in the form of asset-backed securities (ABS) and the said legal problems have been resolved as part of the securitisation process. When assuming loans directly, other central banks also focus on loans within their own jurisdiction.
- The SNB's liquidity assistance must be fully covered by sufficient collateral at all times. In order to ensure this, the SNB applies risk discounts (haircuts), which are risk-based and in line with market conditions, to the securities and mortgage claims. Such haircuts are determined using recognised risk assessment methods. They are comparable with those of other central banks and market participants.
- A higher rate of interest is no substitute for risk-based haircuts because an obligation to pay interest does not constitute collateral.
- ELA is available to all systemically important banks. The operational set up for access is in place, and the processes are tested.
- Furthermore, the SNB is expanding its possibilities for providing liquidity to the whole banking sector. This initiative started in 2019. Following the launch of a pilot phase, the whole banking sector was duly informed in July 2023.
- This expansion is aimed at making it possible for the SNB to provide liquidity against illiquid mortgage collateral to the whole banking sector in the event of liquidity shortages.
- In order to be able to provide illiquid collateral to the SNB in a crisis, it is vital that banks take the necessary preparatory measures.
- These consist, in particular, of creating the contractual requirements, ensuring the legal and operational transferability of the collateral, as well as regularly testing the processes with the SNB and other service providers involved.
- These preparations entail costs for the banks. Although the SNB can offer banks liquidity facilities in performing its role as lender of last resort, it does not have the power to instruct banks to take the necessary preparatory action. The SNB is convinced that good preparation for crisis situations is in the interest of the whole banking sector.
- Information that a bank has obtained liquidity assistance from a central bank can lead to a loss of confidence on the market (issue of stigma attached to liquidity assistance). This poses a key challenge for all central banks as both the central bank and the bank are subject to certain statutory disclosure obligations.
- Confidence can be weakened further particularly if bank-specific problems exist and no other measures are being taken to strengthen the bank.
- The issue thus arises primarily due to the amount of liquidity being obtained and the reason for doing so - in the case of Credit Suisse a fundamental loss of confidence - and not due to the name of the instrument via which the liquidity is provided (e.g. 'emergency liquidity'). Renaming an emergency facility as an ordinary facility, for example, would therefore not be a solution.
- The risks from a disclosure of liquidity assistance should be taken seriously, however. There are no simple solutions here. In any adjustment of disclosure obligations, consideration would have to be given to whether the advantages of such a regulation are to be given more weight than the need for market transparency.
- The authorities which deal with financial stability issues are first and foremost the Federal Department of Finance (FDF), the Swiss Financial Market Supervisory Authority (FINMA) and the SNB. Each of these three authorities has its own specific powers and responsibilities assigned to it by law. In the case of the SNB, this is its role as lender of last resort (LoLR). This clear division of powers and responsibilities facilitates the three authorities' capacity to act.
- At the same time, it is essential that the authorities exchange information on financial stability issues and coordinate their work and decisions aimed at crisis prevention and management. To this end, the FDF, FINMA and the SNB have signed a Memorandum of Understanding.
- In the context of the crisis at Credit Suisse, the committees specified in the Memorandum of Understanding played a key role in evaluating the need for action and in coordinating measures between the authorities. In its role as LoLR, the SNB kept the authorities continuously apprised of the status of preparations and the volume of ELA available. The provision of the liquidity assistance loans was coordinated closely with the other authorities.
Initiative against war trade 2020
The Swiss popular initiative ‘For a ban on financing war material manufacturers’ (Initiative against war trade) was put to a national vote on 29 November 2020. The SNB opposed the initiative. Find out about the SNB’s position and its rationale here.
Sovereign money initiative 2018
The Swiss popular initiative ‘For crisis-resistant money: end fractional-reserve banking’ (Vollgeld-Initiative) was put to a national vote on 10 June 2018. The initiative called for the introduction of a sovereign money system in Switzerland. Both the Federal Council and the Swiss parliament opposed the initiative, as did the SNB. Find out about the SNB’s position and its rationale here.
Gold initiative 2014
The popular initiative ‘Save our Swiss gold’ (gold initiative), which was put to the vote on 30 November 2014, demanded that the share of gold in the SNB’s assets be increased to at least 20%. Gold was not to be sold and was to be physically stored in Switzerland only. Both the Federal Council and the Swiss parliament rejected the initiative, as did the SNB. Below you will find information outlining the reasons for the SNB’s position.
Cosa initiative 2006
The people’s initiative ‘National Bank profits for the Old Age and Survivors’ Insurance Fund (AHV/AVS)’, better known as the Cosa initiative, which was put to the vote on 24 September 2006, demanded that the National Bank’s future profits be allocated to the AHV/AVS. Both the Federal Council and the Swiss parliament rejected the initiative, as did the Swiss National Bank.
For information regarding SNB-specific aspects of the initiative and the SNB’s reasons for rejecting it, please consult the factsheets (available in German and French only).