Swiss Banks to Charge for Deposits - Analyst Blog
December 04 2012 - 4:20AM
Zacks
The largest Swiss banks, including Credit Suisse
Group (CS) and UBS AG (UBS), 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 currency.
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 desired
levels.
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 (STT) and The Bank of New York Mellon
Corporation (BK) 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
pressures.
Both Credit Suisse and UBS hold a Zacks #3 Rank, which translates
into a short term Hold rating.
BANK OF NY MELL (BK): Free Stock Analysis Report
CREDIT SUISSE (CS): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
UBS AG (UBS): Free Stock Analysis Report
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