Swiss National Bank Raises Reserve Requirements for Banks to Curb Payouts

The Swiss National Bank (SNB) has increased the minimum reserve requirement for domestic banks, including UBS Group AG, from 2.5% to 4% effective July 1, 2024. This move aims to reduce the interest payments the SNB makes to banks on their deposits, potentially saving the central bank hundreds of millions of Swiss francs each year. "These adjustments will ensure the effective and efficient implementation of the SNB's monetary policy," the SNB stated, adding that the changes will not affect the current monetary policy stance.

The increase in reserve requirements is anticipated to result in a revenue hit of up to 400 million Swiss francs ($440 million) for Swiss banks, according to an estimate from Raiffeisen Switzerland economist Alexander Koch. The decision comes as a regulatory setback for UBS, which is also facing proposed government rules that could force the bank to set aside an additional 15 to 25 billion Swiss francs in capital.

The SNB's move follows the acquisition of Credit Suisse by UBS last year, creating a banking behemoth with a balance sheet twice the size of Switzerland's annual economic output. This has raised significant concerns and prompted the Swiss government to propose tighter rules for banks deemed too big to fail. The SNB reported losses in 2022 and 2023, similar to the European Central Bank's first loss in two decades following an increase in borrowing costs to tackle inflation.

Why this matters: The SNB's decision to raise reserve requirements for banks highlights the ongoing efforts by central banks and governments to strengthen financial stability and reduce systemic risks in the banking sector. The move also underscores the challenges faced by major banks like UBS in navigating an increasingly complex regulatory landscape while maintaining profitability.

The SNB emphasized that the adjustments to the reserve requirements are aimed at maintaining the effectiveness of its monetary policy tools and will not affect the current policy stance. The central bank unexpectedly reduced its benchmark rate by 25 basis points to 1.5% last month to support economic activity and ensure appropriate monetary conditions. The increase in reserve requirements is part of the Swiss government's broader efforts to make the banking sector more robust, particularly in light of the recent acquisition of Credit Suisse by UBS.

Key Takeaways

• SNB raises minimum reserve requirement for domestic banks from 2.5% to 4% from July 2024.
• Move aims to reduce SNB's interest payments to banks, potentially saving hundreds of millions.
• Increase in reserve requirements expected to cost Swiss banks up to 440 million Swiss francs.
• SNB's move follows UBS's acquisition of Credit Suisse, creating a banking giant.
• Regulatory changes aim to strengthen financial stability and reduce systemic risks in banking.