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At the SNB’s Money Market Event in Geneva on Oct. 29, Petra Tschudin and Thomas Moser described how the central bank provides liquidity only against collateral that meets its policy requirements. They said the SNB GC Basket supports monetary-policy operations and payments, while collateral rules limit credit risk and are reviewed as markets and technology change.
Swiss National Bank officials Petra Tschudin and Thomas Moser said on Oct. 29 that the SNB provides central-bank liquidity to the financial system only against sufficient collateral, outlining how that framework supports monetary policy and payments while limiting risk to the bank’s balance sheet. Their remarks at the SNB’s Money Market Event in Geneva focused on the central bank’s collateral policy and the role of its GC Basket in Swiss interbank markets.
The officials described three statutory functions that involve providing liquidity: implementing monetary policy in the Swiss franc money market, supporting cashless payments, and contributing to financial stability. The event’s focus, they said, was the first two. Banks settle money-market transactions through sight deposits at the SNB, and the central bank uses repo transactions to provide or absorb liquidity to keep short-term market rates close to its policy rate.
They said the SNB’s current open-market operations are used to absorb liquidity, given a non-negative policy rate and still-high liquidity in the system. They contrasted this with the negative-rate period, when the SNB sometimes supplied liquidity to counter temporary upward pressure on short-term rates. The speech also cited the liquidity support provided during the Credit Suisse crisis as an example of the SNB’s financial-stability role.
The SNB GC Basket, according to the officials, combines high quality requirements with broad international scope. They said it has become the collateral standard in the Swiss interbank repo market. A shared basket and integrated market infrastructure can make collateral easier to mobilise, supporting monetary-policy implementation and payment operations.
Collateral Underpins SNB Liquidity Operations
The collateral rules affect how banks access central-bank liquidity and how they redistribute liquidity among themselves. A policy that accepts assets market participants can actually deliver, and that allows them to be mobilised reliably, can help the SNB carry out repo operations and meet short-term payment needs. The officials framed effectiveness, efficiency and transparency as core requirements for the framework.
Collateral also matters to the SNB’s exposure to counterparties. If a borrower cannot meet its obligations, the central bank may sell collateral to recover the amount owed, the speech said. That protection helps limit potential losses and supports the SNB’s ability to carry out its statutory tasks over time. The shared GC Basket standard also has implications beyond the SNB’s own transactions because it is used in the interbank repo market.
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Three Statutory Uses of Liquidity
The National Bank Act assigns the SNB several tasks, and the officials said liquidity provision supports three of them. In the Swiss franc money market, the SNB uses repo transactions to influence the supply of central-bank money and keep short-term rates close to its policy rate. For payments, banks may need liquidity at short notice because incoming and outgoing payments do not arrive at the same time.
The third purpose is financial stability. If a bank considers its own liquidity buffers inadequate, the SNB can provide liquidity support, subject to its framework. The speech distinguished that crisis-support function from the event’s main focus on routine money-market operations and payment flows. The central bank said it reviews its collateral policy on an ongoing basis and adjusts it as needed for changing market conditions and technological developments.
“The SNB provides the financial system with central bank liquidity. It always does so against collateral, and this has to meet requirements set out by the SNB in its collateral policy.”
— Petra Tschudin and Thomas Moser, SNB officials
Operational Changes Not Specified
The supplied speech material does not identify specific changes to the collateral eligibility rules, name new assets, or give a timetable for amendments. It also does not quantify the current liquidity volume or detail the terms and scale of routine repo operations. The officials’ remarks explain the policy’s aims and current direction, but do not establish that a policy revision is being announced.
The speech states that collateral must be usable in practice and that the SNB must establish a valid security interest. The available material does not set out asset-by-asset criteria or describe the operational arrangements in detail. Any effects of future technological developments on eligibility or mobilisation therefore remain unspecified.
SNB Review Continues
The SNB says it will continue reviewing its collateral policy and make adjustments when changing market conditions or technology warrant them. The speech does not announce a specific next policy decision or publication date. Banks and other market participants will need to look to subsequent SNB communications for any concrete changes to eligible collateral, operational arrangements or repo procedures.
For now, the framework described at the event remains the relevant account of the bank’s approach: liquidity is provided against sufficient collateral, with the GC Basket serving as a common standard in Swiss interbank repo trading.
Key Questions
What did the SNB officials discuss on Oct. 29?
Petra Tschudin and Thomas Moser explained the SNB’s collateral policy at the bank’s Money Market Event in Geneva, including how collateral supports liquidity provision while limiting credit risk.
Why does the SNB require collateral?
The SNB says collateral helps protect it if a counterparty cannot meet its obligations. The central bank may sell the pledged assets to recover what it is owed, limiting potential losses.
What is the SNB GC Basket?
It is a basket of collateral that the officials described as combining high quality requirements with broad international scope. They said it has become the collateral standard in the Swiss interbank repo market.
Did the speech announce new collateral rules?
No specific change was announced in the supplied speech material. The officials said the SNB reviews its policy on an ongoing basis, but did not give a timetable or identify assets whose eligibility would change.
How does SNB liquidity support payments?
Banks’ incoming and outgoing payments occur at different times, which can leave an individual bank needing additional liquidity at short notice. The SNB said it provides liquidity when necessary to support smooth and efficient cashless payments.
Source: snb.ch
