Swiss National Bank lowers threshold for charging commercial banks interest

By John Revill

Zurich, Jan 26 (Reuters) - The Swiss National Bank SNBN.S is lowering its threshold factor for charging interest on the sight deposits of commercial banks with effect from March 1, the central bank said on Monday, as it seeks to ensure the money market functions efficiently.

The lowering of the threshold factor follows four other changes since 2024, when the SNB raised the reserve requirement for commercial banks.

The latest change will lower the threshold factor before negative rates apply on overnight deposits from 16.5 to 15 times their minimum reserve requirements.

Commercial bank reserves up to threshold factor will be subject to the SNB's current policy rate of 0% and above that, they will be charged interest at minus 0.25%.

SUPPORTIVE OF AN ACTIVE MONEY MARKET

The SNB said the lowering of the threshold factor counteracts the impact of higher minimum reserve requirements from July 1, 2024.

It said it would ensure the implementation of monetary policy remained effective and supported an active money market.

"The adjustment of the factor has no impact on the current monetary policy stance," it added.

UBS economist Maxime Botteron said it was a technical adjustment to counter the increase in the SNB's requirement for commercial banks to hold minimum reserves of 4% of relevant liabilities, up from 2.5% earlier and the associated increase in the threshold.

"Rather than paying the negative rates, this encourages banks to lend excess liquidity to other banks," Botteron said. "Interbank lending has not really declined, but this move could be seen as a preventative step to prevent any changes.

"If you don't reduced the threshold, fewer banks would pay the negative rates and have less incentive to lend to other banks."

The interbank market is important for the calculation of the Swiss overnight lending rate SARON, as it is based on actual market transactions.

"Some mortgages and other credit are based on SARON rate, and it is how the SNB's monetary policy is transmitted to the rest of the economy, so it's important it functions," Botteron said.