SNB-Schlegel: Support legal anchoring of the PLB
Published: Thursday, Nov 9th 2023, 18:41
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The Swiss National Bank (SNB) supports the Federal Council's plans to enshrine the liquidity backstop for systemically important banks in law. The so-called Public Liquidity Backstop (PLB) corresponds to the proven division of roles between the National Bank and the Confederation, said SNB Vice President Martin Schlegel in a speech.
The state default guarantee created under emergency law, which was used in the takeover of CS, was recently criticized in parliament. Schlegel is campaigning for the transfer of the PLB into ordinary law: "It takes into account the limits of the SNB", said Schlegel according to the text of his speech at the University of Basel on the topic of "The role of the SNB as lender of last resort".
Schlegel looked back on the events in spring, when Credit Suisse was rescued in a kind of "fire drill". At the time, the Federal Council had to activate an additional liquidity assistance loan from the SNB (known as ELA+) and the PLB by emergency law in order to ensure the successful implementation of the takeover of CS by UBS. In the case of the ELA+, the SNB only had a bankruptcy privilege, while the Confederation provided the collateral for the PLB.
Only against collateral
According to Schlegel, there are limits to the SNB's role as "lender of last resort". The central bank can provide liquidity assistance to a bank against collateral. However, if further liquidity assistance is required without collateral from the bank - to avert serious consequences for the Swiss economy - then it is the Confederation's turn.
"Then the federal government must be able to decide on this and also bear the risks," said Schlegel. "The decision on the use of public funds is reserved to the federal government," emphasized the SNB Vice Chairman.
According to Schlegel, limiting the SNB's responsibility to collateralized loans ensures that the SNB's support is limited to liquidity assistance and does not become solvency assistance.
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