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Swiss National Bank officials Petra Tschudin and Thomas Moser discussed the bank’s policy of providing central bank liquidity only against sufficient collateral at an Oct. 29 money-market event in Geneva. They said the policy protects the SNB’s balance sheet while supporting monetary policy operations and payment flows; the SNB GC Basket is a key shared collateral standard in the Swiss interbank repo market.
Swiss National Bank officials Petra Tschudin and Thomas Moser outlined the central bank’s collateral policy at its Money Market Event in Geneva on Oct. 29, explaining how the SNB provides liquidity to the financial system only against eligible collateral. The framework is intended to limit the bank’s credit risk while supporting monetary policy implementation and smooth payments.
The SNB said its statutory tasks involving liquidity include providing liquidity to the Swiss franc money market, supporting cashless payments and contributing to financial stability. The Geneva event focused on the first two functions. The National Bank Act requires the SNB to provide liquidity only against sufficient collateral, according to the speech.
The bank uses repo transactions to provide or absorb liquidity in the money market, with the aim of keeping short-term market rates close to its policy rate. The speech said that, under the current conditions described by the speakers — a non-negative SNB policy rate and liquidity levels that remain high — open market operations are used to absorb liquidity. The report also described liquidity provision when banks need funds at short notice to manage the timing of incoming and outgoing payments.
The speakers identified the SNB GC Basket as a key part of the framework. The basket combines high-quality requirements with a broad international focus and has become an established collateral standard in the Swiss interbank repo market, the SNB said. A common standard and integrated market infrastructure help market participants mobilise collateral, supporting monetary operations and payment activity.
Collateral Links Liquidity and Payments
The rules matter because collateral determines which assets financial institutions can use to obtain central bank liquidity and how quickly they can mobilise those assets. When banks need liquidity for market transactions or to meet payment obligations, operationally usable collateral can help them access funds through the SNB’s facilities. The framework therefore affects both the central bank’s operations and liquidity redistribution among banks.
Collateral requirements also limit the SNB’s exposure if a borrower cannot meet its obligations: the bank can sell pledged assets to recover funds, according to the speech. The SNB said this protection helps safeguard its balance sheet and preserve its ability to carry out its statutory mandate. The GC Basket’s shared market role may also reduce friction in collateral mobilisation, though the speech did not quantify any effect on costs, settlement speed or market liquidity.
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How the SNB Uses Liquidity
Central bank money is used to settle transactions between financial institutions. The SNB said banks settle money-market cash flows through sight deposits held at the central bank, while the overall volume of those deposits is connected to monetary policy implementation. Repo transactions allow the SNB to add or withdraw liquidity as it seeks to guide short-term rates.
Liquidity also supports day-to-day payments. Because payments do not arrive and leave a bank at the same time, a financial institution can need extra funds temporarily. The SNB said it makes liquidity available when necessary to support smooth and efficient payment flows. A separate function is support for financial stability: the speech cited liquidity assistance provided during the Credit Suisse crisis as an example, while distinguishing that topic from the event’s main focus.
The SNB described three qualities for collateral policy: it should be effective, efficient and transparent. Assets must be legally and operationally prepared for use as collateral, and the SNB must be able to establish a valid security interest. The policy is reviewed on an ongoing basis and adjusted when market conditions or technology change, according to the bank.
Policy Changes Not Specified
The speech described the SNB’s existing approach but did not announce a specific change to eligible collateral, the GC Basket, or the terms of liquidity operations. It also did not provide new figures for the amount of liquidity absorbed, the size or composition of the basket, or the market impact of its use. The report does not specify a timetable for any future policy adjustments.
The SNB said it reviews the framework on an ongoing basis, but it remains unclear from this event whether any particular market or technology development is currently prompting a revision. The speakers’ account of present conditions and operations reflects the information in the speech; further changes would need to be confirmed by the bank.
Ongoing Review of Collateral Rules
The SNB said it will continue reviewing its collateral policy and adjust it when needed to reflect changes in market conditions and technology. The speech set out no immediate next decision or implementation date. Any concrete update to the rules, eligible assets or operational arrangements would need to be confirmed in a subsequent SNB communication.
For now, the bank’s stated framework remains liquidity against sufficient collateral, with repo operations used to manage money-market liquidity and facilities available to support payment needs. Market participants will be watching for any later SNB notice that changes how collateral can be mobilised or how the GC Basket is maintained.
Key Questions
What did the SNB officials discuss on Oct. 29?
Petra Tschudin and Thomas Moser discussed the SNB’s collateral policy and how it governs the central bank’s provision of liquidity to the financial system.
Why does the SNB require collateral?
The SNB says collateral limits its credit risk if a counterparty cannot meet its obligations. The bank can sell pledged assets to recover funds, helping protect its balance sheet.
What is the SNB GC Basket?
It is a basket of collateral that the SNB says combines high-quality requirements with a broad international focus. The bank said it has become an established standard in the Swiss interbank repo market.
Did the event announce a change to collateral rules?
No specific policy change was announced in the source material. The SNB said it reviews its collateral policy on an ongoing basis and adjusts it as necessary.
How does the SNB use liquidity operations?
The SNB uses repo transactions to provide or absorb liquidity in the Swiss franc money market, with the stated aim of keeping short-term market rates close to its policy rate. It also provides liquidity when needed to support payment flows.
Source: snb.ch
