All eyes are on the Swiss National Bank next week when it will decide whether to cut interest rates yet again. The top banking lobby is eagerly awaiting the outcome of its considerations and presented three possibilities of what this will mean for the industry.
The impending rate decision by the Swiss National Bank (SNB) came to dominate the Swiss Bankers Day, an event otherwise used to present the banking industry in the best of lights. With today’s rate cut in the eurozone, the Swiss bankers have even more cause for concern, or so it seems.
When Chairman Herbert J. Scheidt and his CEO Joerg Gasser met the press on Tuesday, they talked about sustainability and the competition between banking hubs, but all that interested the media was: what will the banking industry do if the SNB were to cut rates yet again next week?
Who Will Break the Deadlock?
Swiss daily «Blick» earlier today published a report, which said that several big banks in Switzerland considered introducing negative rates even for clients with small purses. So far, banks have only charged institutional clients and wealthy individuals.
The Swiss Bankers Association is also mulling this question, Gasser said. He said that there were three options on the table:
- One of the big banks of Switzerland becomes first mover and introduces a lower threshold on savings exempt from negative rates. This would then prompt other banks to follow suit. The first mover faces the risk that his customers pull their assets out overnight and move to a rival.
- All banks agree to introduce negative rates by way of a concerted effort. A plan that even Gasser thought might become an issue for the competition commission – Gasser in his previous role was a top public servant and knows very well how the Swiss administration works.
- The third options is keeping the less wealthy exempt from negative rates and to claim compensation from the SNB for doing so. How this would work in reality remains open, but the lobby group probably had a deal in mind that would include the 2 billion Swiss francs ($2 billion) banks currently are forced to pay for their sight deposits at the central bank.
New Risks to Financial Market Stability
The Swiss Bankers Association wants the central bank to take a broader approach in assessing financial market stability. The pure focus on banks and their capital endowment is outdated, according to Scheidt.
New risks, such as cybercrime, the market entry of less regulated players and negative rates all present plenty of cause for concern, the top industry representative said.
A Risk to Its Mandate?
The negative rates in particular are a worry because they are causing massive structure damage, he warned. An overheating of the property market, struggling pension funds and banks that have to compensate for lower rate margins by pumping up volume.
Seen from this point of view, the central bank is becoming a risk to its very mandate, Scheidt said. From today’s perspective, negative rates are endangering the stability of the financial markets.
