The Swiss National Bank has decided to support the banking system in the current crisis and will reduce their penalty payments on cash holdings. The monetary authorities also examine the relaxation of the countercyclical capital buffer.
The Swiss National Bank (SNB) is reacting to the economic slump that follows the spread of the coronavirus: the bank is raising the exemption threshold as of April 1, 2020 and thereby reduces the negative interest rate burden on the banking system, it said in a statement on Thursday. The threshold factor will increase to 30 from a current 25.
Furthermore, the SNB is examining whether it is possible to relax the countercyclical capital buffer to increase the banks’ room for manoeuver. The monetary authority sees the banking industry equipped to deal with the difficult situation affecting the economy as a whole, but wants to strengthen the banks in their central role. The SNB will examine this step, keeping in mind of the risks on the mortgage and real estate markets.
Increased Currency Market Interventions
The bank kept the policy rate at minus 0.75 percent as an expansionary monetary policy is more necessary than ever for ensuring appropriate monetary conditions in Switzerland. The SNB is intervening more strongly in the foreign exchange market to contribute to the stabilization of the situation.
The SNB didn’t give a new forecast for economic growth in 2020. The bank expects a «marked decline in economic activity in Switzerland in the first half of the year», followed by a gradual return to normal.
Further Support for Business in Evaluation
The financial system in Switzerland has sufficient liquidity, it said. The SNB will take additional steps to ensure liquidity as necessary. The bank is working closely with the government with the aim of providing the best possible support to the economy.
The SNB didn't give an update on the demand by Swiss academics for a state fund to help the economy. In a telephone conference with journalists, SNB President Thomas Jordan said that talks were ongoing about further measures to support business at this critical moment but that it was too early to give details.
The Swiss government will give an overview of measures taken in response to the economic slump tomorrow Friday at a press conference in Bern.
New Funds Not for Dividend or Bonus Payments
If the SNB decides to relax the countercyclical capital buffer, the industry would get additional room for manoeuver to the tune of 5 to 6 billion francs ($5.1 to 6.2 billion). Jordan added that banks currently had plenty of capital available, with about 50 billion francs available for loans.
The SNB expects that banks won't use additional funds provided by the authorities for dividend or bonus payments but to support ailing companies. Jordan said he was convinced that banks knew what their role in solving the crisis was.
