Permanent link to this article: https://snbchf.com/swiss-macro/2014-sm/history-swiss-balance-of-payment/

2 comments

  1. wiesenda

    The position “net bank lending” merits deeper inspection. I suspect it is an aggregate made up of several, possibly quite large, positive and negative terms whose importance is on top of that changing over time. Therefore it is difficult to draw conclusions from the aggregate value alone. For example, the idea that foreign bank clients are the source of positive net bank lending in the years after 2007 is possible albeit an outflow of deposits due to tax regularization may also be taking place.

    Be that as it may, these flows surely have to be orders of magnitude smaller than the deleveraging going on in the Swiss banking sector? Were the two big banks not major conduits for exporting capital? Their shrinking exercise must be bringing capital home. The effect of this would be very similar to what has happened in Germany. Its current account surpluses post 2000 had been reinvested in the Euro periphery through the banking conduit (German banks lending to periphery banks).

    When trust among banks evaporated post 2007 – they had realized that, oops, mortgage loans can go sour in the US (where they were exposed through securities), therefore also in Europe (where they were exposed through interbank loans) – the ECB stepped in as an intermediary for short term lending, later joined by various other facilities for longer-term lending.

    The result of all this assisted de-leveraging and these bailouts was that the cumulative current account surpluses landed on the balance sheet of the Bundesbank as a TARGET2 credit. It is easier to think of this as a stock phenomenon (the transfer of a foreign loan portfolio from the banking system to the Bundesbank) than as a flow phenomenon.

    I believe a similar thing is happening in Switzerland for slightly different reasons in a different setting – but basically it’s a central-bank-assisted deleveraging of the banking sector. Now that the money is parked at the SNB what do we do with it? Leave it in the custody account at the SNB? Make it disappear by maintaining the peg and creating inflation (the German way in the EU system) or let the CHF appreciate and thereby restarting the virtuous circle of competitive pressure on industry and redistribution of the productivity gains to everyone through an appreciating CHF? The latter by the way is the reason that Bali is full of Swiss supermarket checkout personnel as one English writer once remarked with a mixture of envy and admiration.

    1. DorganG

      Sorry for the late response due to time constraints during the working week:
      I added the details for net bank lending in the text. https://snbchf.com/wp-content/uploads/2013/07/Foreign-Clients-Lending-to-Swiss.jpg
      This number shows the gross lending of foreign bank clients to Switzerland. Both gross lending and net lending of foreigners to Switzerland is increasing.
      You are right saying that Swiss lending to US and EU has excessively decreased.

      Thanks for impressive
      “Make it disappear by maintaining the peg and creating inflation (the German way in the EU system) or let the CHF appreciate and thereby restarting the virtuous circle of competitive pressure on industry and redistribution of the productivity gains to everyone through an appreciating CHF?”

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