Can the SNB rescue banks?
The collapse of a bank can have grave consequences for a country and its people. The SNB has instruments at its disposal to stabilise a bank experiencing financial difficulties. However, in the case of a bank rescue there are clear rules on what the SNB can and cannot do.
How can banks get into financial difficulties? One reason is that a bank’s customers have a variety of different requirements. On the one hand there are savers, who want access to their accounts at all times, for example to pay their bills. And then there are people such as homeowners, who need to be able to plan with certainty over the long term and who for that reason often take out multi-year mortgages.
A bank may encounter difficulties if many savers withdraw their deposits at the same time, since a large proportion of those funds are tied up in long-term loans and thus cannot be paid out immediately. In the worst-case scenario, there can even be the danger of a run on the bank.
Banking regulation
Banks are required to comply with certain regulations in order to reduce the risk of a banking crisis. They are also subject to oversight in the performance of their business activities.
Lender of last resort
If a bank does nonetheless find itself in financial difficulties, it can turn to the SNB for assistance in the form of liquidity. In return for this, the bank must transfer mortgage loans or securities, which serve the SNB as collateral to be sold if the institution in question goes bankrupt. In order to receive assistance from the SNB, the bank must be solvent and viable, or a package of measures must be available which ensures that its business will remain viable.
CHF 168 billion
The SNB provided CHF 168 billion in liquidity assistance in various currencies for managing the crisis at Credit Suisse. Without the SNB’s support, Credit Suisse would have been in danger of being unable to meet its financial obligations, which would have posed great risks for financial stability and for the Swiss economy.
Announcement of package of measures to solve crisis at Credit Suisse
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Good to know
‘Too big to fail’
A bank is designated ‘too big to fail’ if its failure would have serious consequences for the financial system, meaning that, in the event of a crisis, the state would be forced to rescue the bank. For this reason, such banks are governed by special regulations. They are required to hold sufficient capital and liquidity and, in the event of a crisis, an orderly resolution must be possible.
What can the SNB do?
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 powers and responsibilities assigned to it by law. The SNB monitors the developments in the banking sector with an eye to the stability of the system. FINMA is charged with supervision of the individual banks.
In a crisis, the SNB can provide liquidity assistance. However, situations may arise in which a bank does not have sufficient collateral that it can transfer to the SNB. In such cases, the Federal Council or Parliament must determine whether that institution should receive liquidity assistance nonetheless, via what is known as the public liquidity backstop.
