Tag Archives: Liquidity support

SNB Annual Report

The SNB has published its annual report. Some highlights from the summary:

Climate risks and adjustments to climate policy can trigger or amplify market fluctuations and influence the attractiveness of investments. From an investment perspective, such risks are essentially no different from other financial risks. The SNB manages the risks to its investments by means of its diversification strategy. …

A prerequisite for illiquid assets to be used as collateral in obtaining liquidity assistance is that a valid and enforceable security interest in favour of the SNB can be established on these assets. Otherwise, should the loan not be repaid, the SNB would be unable to realise the collateral. A decisive factor for the usability of assets is that the banks have made the necessary preparations. …

The crisis at Credit Suisse highlighted weaknesses in the regulatory framework. Banks’ resilience and their resolvability in a crisis should therefore be strengthened. At the same time, the current ‘too big to fail’ (TBTF) regulations should be reviewed to ensure that they take adequate account of the systemic importance of individual banks. In particular, the SNB recognises a need for action in the areas of early intervention, capital and liquidity requirements, and resolution planning. It is participating at both national and international level in the ongoing debate about regulatory adjustments.

In 2023, the SNB presented its ‘Liquidity against Mortgage Collateral’ (LAMC) initiative to the public. Banks of all sizes can find themselves in a situation where they need significant amounts of liquidity quickly despite having precautions in place that comply with regulations. The aim of the LAMC initiative is to ensure that, should the need arise, the SNB will in future be able to provide liquidity against mortgage collateral to all banks in Switzerland that have made the requisite preparations. This possibility was already available to systemically important banks. Preparatory work for this initiative started in 2019. …

Employees from the BIS and the SNB continued their research activities at the BIS Innovation Hub Swiss Centre. Work focused on technologies for tokenising assets and on the analysis of large volumes of data. …

At the invitation of the Indian G20 presidency, Switzerland again participated in the Finance Track in 2023. In this forum, the SNB emphasised the importance of pursuing a monetary policy geared towards price stability and contributed its analyses of central bank digital currency and payment systems. …

The SNB introduced a new current account survey in order to better record the global production of multinational enterprises whose production and trade processes are distributed across various countries in Switzerland’s balance of payments statistics.

Central Bank Balance Sheets, LOLR Safety Nets, and Moral Hazard

Niall Ferguson, Martin Kornejew, Paul Schmelzing and Moritz Schularick in CEPR dp 17858:

From the introduction:

… time and again, central banks deployed their power to create liquidity in a bid to insulate economies from disasters. … first began to be linked to geopolitical tail events during the 17th and 18th centuries – occurring with increasing regularity during wars and revolutions –, … the context of central bank liquidity support gradually but consistently shifted towards financial crises: … central banks’ sensitivity to financial crises has risen sharply over the 20th century and increasingly became a systematic response to financial distress after the Great Depression. …

… central bank liquidity support systematically cushioned economic effects of financial crises throughout modern history of advanced economies. …

Historically, central bank liquidity support in crises is associated with a rising probability of future episodes of excessive risk-taking by financial intermediaries that end in another financial crisis. If central banks refrained from using their balance sheet to support markets in the last crisis, episodes of renewed excessive risk taking are much rarer.