Swiss National Bank Raises Minimum Reserve Requirements: Impact and Implications

The Swiss National Bank (SNB) announced on Monday its decision to increase the minimum reserve requirement for domestic banks, a move that could potentially save the central bank hundreds of millions of Swiss francs in interest payments annually. This adjustment comes as part of the SNB’s efforts to bolster the resilience of the banking sector and ensure financial stability within Switzerland.

In a statement released by the SNB, it was revealed that the minimum reserve ratio would be raised from 2.5% to 4%. Additionally, the deposits held by banks to meet these minimum reserve requirements would not be remunerated, effectively reducing the interest costs incurred by the SNB. According to sources familiar with the matter, this change is estimated to result in savings of approximately 600 million Swiss francs ($659.05 million) per year for the central bank.

The announcement had an immediate impact on the stock market, particularly on shares of Switzerland’s largest bank, UBS, which experienced a decline of over 1.5% in morning trading, underperforming its European counterparts. Analysts, such as Ausano Cajrati Crivelli from Zuercher Kantonalbank, emphasized the significance of the adjustment and highlighted that it would have noticeable effects on banks’ operations. Cajrati Crivelli pointed out that since banks would now be required to maintain higher minimum reserves without earning interest on them, further analysis would be needed to fully assess the implications for lenders’ profitability.

The decision by the SNB comes in the wake of recent proposals by the Swiss government aimed at strengthening the banking sector and preventing systemic risks. Of particular concern is the need to avoid a scenario similar to the collapse experienced by Credit Suisse, one of UBS’s long-standing rivals. UBS ultimately acquired Credit Suisse after its downfall, prompting fears that the consolidation of these two major banks could pose significant risks to the Swiss economy.

In response to these developments, the SNB clarified that the adjustments to the minimum reserve requirements would not impact its current monetary policy stance. The changes, scheduled to take effect from July 1, involve amendments to the National Bank Ordinance. One key modification is the inclusion of liabilities arising from cancellable customer deposits, excluding tied pension provisions, in the calculation of the minimum reserve requirement. Previously, only 20% of such liabilities were considered for this purpose.

Overall, the SNB’s decision to raise the minimum reserve requirement reflects its commitment to ensuring the stability and resilience of the Swiss banking sector. By imposing higher reserve ratios and revising calculation methods, the central bank aims to enhance the financial soundness of domestic banks and mitigate systemic risks. However, the full implications of these changes on banks’ profitability and the broader economy will require careful monitoring and analysis in the coming months.