The largest Swiss banks, including
Credit Suisse Group
), have decided to charge fees and pay negative interest rates on
interbank Swiss franc deposits. This action is a part of these
banks motive to discourage excess hoarding of the valued
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Credit Suisse is the first bank to have set negative interest
rate on Swiss franc deposits for handling the rising demand for
the currency. The bank will start implementing negative interest
rate from December 10, 2012, though the rate was not disclosed.
However, only inter bank deposits will be exposed to negative
interest rates whereas individuals would be spared.
Similarly, UBS is of the idea that charging a fee on excess
deposit balances would help it maintain account balances at
Earlier in 2011, Swiss National Bank had reduced its interest
rates near zero in order to control the value of Swiss franc.
Later, it imposed a floor of 1.2 Swiss francs per euro to control
the value appreciation of the Swiss franc, assisting the Swiss
exporters to remain competitive.
Swiss banks are not the first to opt for negative interest rate
policy. In October this year,
State Street Corporation
The Bank of New York Mellon Corporation
) declared to charge depositors for holding Danish kroner and
Swiss francs deposits. This move was a part of these banks'
strategy to re-establish a decent profit margin between what has
been paid for deposits and what has been earned on investments.
Since the Euro Zone crisis is deepening, investors have started
drifting to other safer currencies deserting the volatile Euro.
European nations, such as Denmark and Switzerland, have slashed
interest rates below zero levels to stop their currencies from
rising. Therefore, currencies like the Swiss francs and Danish
kroner offer less risk compared to Euro.
The application of negative interest rates will definitely
discourage big institutional clientele from stashing more
deposits into the banks, thereby increasing money supply in the
economy. This will protect the Swiss economy from deflationary
Both Credit Suisse and UBS hold a Zacks #3 Rank, which translates
into a short term Hold rating.