Swiss banks secure over eleven billion dollars – highest volume since 2008
Banks in Switzerland have borrowed the most dollars since 2008 through a dollar swap facility provided by the Federal Reserve. Instead of liquidity bottlenecks, there is more likely to be a hunt for easy profits.
At the auction conducted by the Swiss National Bank on Wednesday, 17 institutions took up $11.09 billion. Such high volume in a single operation has not been seen since October 2008, after the collapse of Lehman Brothers triggered the global financial crisis.
This week, banks tapped the facility for the fourth straight week. Last Wednesday, 15 banks drew $6.27 billion in liquidity. According to Credit Suisse economists, Swiss banks are converting dollars into francs to make a profit. Institutions can even sell the money back to the SNB via reverse repo auctions or deposit it with the SNB to benefit from a positive interest rate.
“We do not believe that the increased demand for dollar liquidity by domestic banks reflects a liquidity problem in the Swiss banking system,” Credit Suisse economist Maxime Botteron wrote in an analysis last week. The dollar swap facility was created as a lifeline during the financial crisis to ensure safe access to greenback liquidity. The SNB’s repo auctions actually serve to siphon off excess liquidity from the market.
Find the best jobs now and
be notified by email.
It is not clear whether the Swiss authorities will actually do anything about the two instruments being exploited in this way. The terms of dollar auctions are controlled by the Fed, while reverse repos are a key tool of the SNB’s ongoing monetary tightening.
All Swiss and foreign banks that have a branch in Switzerland or are registered with the Swiss authorities can take part in the dollar auctions. Credit Suisse assumes that it is primarily smaller banks that make use of the arbitrage opportunity.
More: Report on investigations by the US tax authority weighs on Credit Suisse shares