The Swiss Central Bank is currently working on introducing a new framework for liquidity support for financial stability purposes, centered on the Extended Liquidity Facility (ELF), said Antoine Martin, vice chair of the Governing Board Swiss National Bank Geneva, in a recent speech.
The ELF encompasses r emergency liquidity assistance (ELA) and brings the support closer to standard operations. It builds on the announcements made in recent years to extend liquidity support to all banks in Switzerland and makes drawing conditions more flexible. Let me walk you through its key features and explain why we have designed it this way.
The primary purpose of the ELF is to provide liquidity support when banks deem their own liquidity buffers no longer sufficient. A key feature of the ELF is simplified access to limited volume liquidity support. Banks can draw liquidity up to a predefined limit without the need to confirm their solvency, and without additional preconditions such as having exhausted market funding. Removing the solvency confirmation for sound banks should not be viewed as a deviation from the solvency requirement outlined earlier. If there are concerns about solvency, the SNB can suspend this simplified access.
A broad collateral framework
The ELF builds on the announcements made in 2023 and 2024 to extend liquidity support to all banks, using mortgages and securities as collateral. The range of collateral accepted includes mortgage claims on both residential and commercial properties, provided the underlying real estate is in Switzerland. Notably, this also covers most Swiss business loans.
The eligible collateral also includes securities such as bonds issued by borrowers with lower credit ratings, as well as securitizations and shares in various currencies.
This broad collateral framework ensures the SNB can offer liquidity support under diverse market conditions and to banks with different business models. As in the past, the range of eligible collateral will continue to evolve, including through ongoing dialogue with the banks, to ensure its relevance and effectiveness.
An important prerequisite is that it must be possible to legally transfer or pledge the collateral to the SNB. Banks’ preparations remain key in this regard: For the ELF to function effectively, banks must ensure they have sufficient collateral prepared ready for transfer to the SNB. This involves addressing legal aspects, such as amending transfer clauses in mortgage contracts.
The SNB is currently working with the banks and SIX to make the ELF operational on a large scale – a process that will take some time.
“The aim is to achieve a high level of standardization and automation close to the handling of open market operations such as repos and SNB Bills. We will keep the public informed of our progress and share further details on pricing and borrowing limits with banks in due course,” Martin said in the speech.