The Swiss franc repo market – a successful first decade

Thomas Jordan, Member of the Governing Board

Repo Meeting 2009, Lucerne, 02.07.2009

This year the Swiss franc repo market celebrates ten years of existence – a first decade that can be regarded as a success story. Initially regarded with scepticism by the banks and conceived by the Swiss National Bank (SNB) as no more than a supplement to the monetary instruments of the time, within no more than a few years the Swiss franc repo market has evolved into the central trading place for secured Swiss franc liquidity, while repo business has become the main instrument of the SNB’s monetary policy.

Together with the private sector, the SNB has created a repo system that is a world leader. Apart from the principles of standardisation, automation, integration and openness, two factors play a key role in the Swiss franc repo market. One of these is the comprehensive reduction in risks with the simultaneous transfer of money and securities and two margin calls a day. The other is the fact that the central bank uses the same platform for its monetary policy as the commercial banks do for the interbank market.

Repo business has proved very flexible and useful for steering the three-month Libor. Even in the latest crisis, the SNB was well able to direct the Libor, using the repo instrument. In addition, the SNB has been able to use the platform for the rapid introduction of additional instruments, such as SNB Bills. The Swiss franc repo market also worked well in the crisis and banks with sufficient high-grade collateral were able to refinance themselves without any difficulty through this market.