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2023-11-09 – Martin Schlegel: A pillar of financial stability – The SNB’s role as lender of last resort

As part of its contribution to the stability of the financial system, the Swiss National Bank acts as lender of last resort. In this role, it makes emergency liquidity assistance available to banks when, in crisis situations, they need substantial liquid funds which they are no longer able to obtain on the market.

The SNB provides this liquidity assistance in the form of secured loans. It accepts a broad range of collateral for this – in particular also illiquid assets. The aim is for banks to be able to obtain as much liquidity as possible from the SNB should the need arise.

Until now this liquidity assistance has been prepared with all systemically important banks. It is now being expanded to allow all banks to obtain liquidity assistance against mortgages when needed – provided they prepare their collateral for this. Failure to prepare can severely restrict the volume of liquidity assistance available. It is therefore important going forward that banks prepare enough collateral for transfer.

However, even if they prepare well, it is possible that their collateral might not be sufficient to cover their liquidity needs. It is in such extreme situations – when even the SNB’s emergency liquidity assistance is not enough – that the proposed public liquidity backstop (PLB) currently being discussed by parliament should take effect. This allocation of functions is international practice and tallies with the tried-and-tested division of roles between the SNB and the Confederation.

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