The Swiss Bankers Association (SBA) says negative interest rates are contributing to financial and economic instability in Switzerland. The central bank, which has set rates at -0.75%, is due to review its policy on September 19.
SBAexternal link Chairman Herbert Scheidt said on Thursday that a normalisation of interest rates “appears a long way off”. “Unfortunately, the societal, structural and long-term damages will become even greater the longer we find ourselves in this ‘lower forever’ environment,” he told the media.
Banks are suffering from having to pay for the privilege of parking assets at the Swiss National Bank (SNB), to the tune of CHF2 billion ($2 billion) per year. Banks have been forced to pass on some of this penalty onto corporate and wealthy clients.
By contrast, interest rates in the United States remain in positive territory while European banks benefit from “targeted longer-term refinancing operations”. These are loans issued by the European Central Bank (ECB) to commercial banks on highly preferential rates provided the money is recycled on to companies.
“Depending on how much credit and how many mortgages the banks have granted over a certain period of time, they can actually receive money from the ECB instead of paying interest on it,” said Scheidt at the annual Swiss Bankers Dayexternal link event in Zurich.
The SBA said negative interest rates also threaten a bubble in the housing market as investors look for more attractive returns, damage pension funds and discourage companies from investing.
Keeping interest rates ultra-low is one of the key weapons that the SNBexternal link wields in its battle to keep down the value of the franc. In times of global uncertainty, investors pump up the value of the safe haven franc, to the detriment of Swiss exporters and the domestic tourism industry.
Charging large-scale investors for stockpiling francs acts as a deterrent, but economists are sceptical about the chances of the SNB dropping rates even further next week. However, the ECB’s decision on Thursday to cut its deposit facility rate on the commercial bank assets it holds from -0.4% to -0.5%, plus a renewed commitment to buy EU government bonds, will add extra pressure on the SNB to react.
The SNB has also been active in the currency markets, effectively printing francs to buy financial instruments denominated in other currencies.
The evidence suggests that the central bank has stepped up this activity to the tune of billions of francs in recent weeks.