In a move aimed at reducing interest payments to banks and optimizing its monetary policy, the Swiss National Bank (SNB) has announced that it will be increasing the minimum reserve ratio from 2.5 percent to 4 percent. This decision is likely to be unwelcome news for banks as it means that their risk-free profit from the SNB’s coffers will decrease. However, the SNB believes that this change is necessary to address the challenges posed by an excess amount of liquidity in the global financial system since the financial crisis.
Since September 2022, Switzerland has seen positive key interest rates again. Commercial banks have been benefitting from generous interest payments from the SNB since then. In order to incentivize banks to exchange money with each other, the SNB pays them interest on the sight deposits they hold with the central bank. By adjusting these interest rates, the SNB aims to achieve a Saron interest rate that aligns closely with the SNB key interest rate.
The SNB paid around 7.4 billion francs in interest on sight deposits last year, but with recent changes in monetary policy, banks are likely to see a slight decrease in interest payments from the SNB in future years. The increase in minimum reserve ratio and removal of some exceptions to minimum reserve requirements are expected to save around 400 million francs per year based on current sight deposit levels. Despite this change, commercial banks will continue to receive significant interest payments, allowing them more funds for investment and growth opportunities.
In conclusion, while this change may negatively affect banks’ risk-free profits from SNB’s coffers, it is part of larger efforts by central banks like SNB to enforce their monetary policy effectively amidst an abundance of liquidity in the global financial system since the financial crisis.
