Is The Swiss National Bank Faking It?

Tyler Durden's picture

Some time ago we said that in a world in which virtually every risk and liquidity benchmark is manipulated by either private banks (thank your Liebor) or central banks, if one needs to know the true state of events in Europe, the only real remaining, unmanipulated benchmark remain Swiss nominal bond yields. And at -23.5 bps for the 2 Year it is telling us that nothing is fixed. As usual. Also judging by the SNB's new head Jordan statements which just hit the tape, in which he says that he would not rule out capital controls or negative rates if the crisis worsens, the SNB gets it. Or does it? Jordan also said that the SNB is ready to defend the FX market with unlimited market purchases if necessary. However, as the note below from JPM shows, the SNB may simply be faking it, hoping it too can get away with simple jawboning, instead of actually putting its money where its mouth is. As it turns out the SNB has indeed been intervening in huge size in the month of May to keep the EURCHF peg. The previously undisclosed news is that it has also been sterilizing its purchases. As JPM further notes: "This is highly significant and undermines the credibility of the SNB’s claim that it is willing to do whatever it takes to hold EUR/CHF 1.20. For the floor to be credible the SNB needs to surrender control over the Swiss monetary based, i.e. it has to be willing to deliver both unlimited and unsterilised FX intervention. The intervention in May was certainly unlimited; it most definitely was not unsterilised." How long until the FX vigilantes decide to test just how far the SNB is truly willing to go in defending the peg? And what happens when Swiss nominal yields hit record negative numbers once again?

From JPM's observations from June 29: The SNB sterilised one half of its FX intervention in May.

The SNB released its full balance sheet for May this morning, which provides a complete picture of the central bank’s FX intervention and liquidity operations during the month. The data confirmed what we already knew from the provisional data three weeks ago that the SNB intervened in huge size during the month (net FX reserves increased by CHF 62.9bn net of valuation effects). What we didn’t know is that approximately half of this intervention was in fact sterilised. This is highly significant and undermines the credibility of the SNB’s claim that it is willing to do whatever it takes to hold EUR/CHF 1.20. For the floor to be credible the SNB needs to surrender control over the Swiss monetary based, i.e. it has to be willing to deliver both unlimited and unsterilised FX intervention. The intervention in May was certainly unlimited; it most definitely was not unsterilised.

The SNB partially sterilised the liquidity effect of the FX intervention in two ways: 1) it reduced the provision of liquidity via CHF repos by 17bn; and 2) it reduced its provision of franc liquidity via FX swaps by 11.7bn (FX swaps are now negative, in other words they have been used to remove CHF liquidity from the system, in contrast to August and September last year when the SNB used FX swaps to inject some CHF 80bn of liquidity). Compared to gross FX intervention of CHF 63bn, the monetary base thus expanded by only CHF 33bn. Not only does the balance sheet data shed fresh light on May’s operations, it would also suggest that the current scale of the SNB’s FX intervention could be substantially larger than suggested by the weekly change in the SNB’s sight deposits. Sight deposits will only register the effect of unsterilised intervention. So far this month deposits have increased by CHF 48bn. There is no way of telling whether the SNB has continued to partially sterilise this intervention. But if the sterilization ratio remains the same as in May, intervention this month could be nearer CHF 100bn than the CHF 50bn suggested by the sight deposit data. Provisional data for gross FX reserves in June is released July 7.

Why would the SNB seek to partially sterilise its intervention, given that both theory and the SNB’s own experience would suggest that sterilised intervention cannot hope to influence the exchange rate in the long-term? (Sterilised intervention by definition has no effect on the supply of the currency and hence no lasting effect on the price. The SNB tried sterilised intervention in 2009-2010 – the failure of this policy was as predictable as it was inevitable). Presumably even the SNB recognises that the super-loose liquidity policy required to stabilise the exchange rate is wholly at odds with the needs of an economy which is growing at 2% p.a, which has no output gap and in which the housing market is overheating and credit growth is becoming problematic. Unfortunately, the SNB cannot isolate the economy from the effects of its exchange rate peg – for the peg to work the SNB has to be willing ultimately to create inflation (through the channel of unlimited liquidity creation); and if it is unwilling to create unlimited liquidity and inflation then peg cannot endure. This then is the significance of today’s data – in partially sterilising its FX intervention, the SNB is partially undermining the very credibility of its currency peg.

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Aziz's picture

They need to learn that having a strong currency is really not a bad thing. 

whatsinaname's picture

Especially if it Aurums..

SilverTree's picture

Women might be able to fake orgasms. But men can fake a whole relationship.

SheepRevolution's picture

Well that's about the most reasonable I have read this entire year.

Oh regional Indian's picture

SNB has "Currency" issues. From what I've read, 1,000 Franc notes are dis-apearing into Swiss Bank Lockers as black/illegal money hoarders un-digitize their holdngs and put them into Hard cash. Lockers have different laws from accounts.

The amounts are staggering, Indian politicialns and fixers are in the lead. So, SNB problems are not the rest of the world's problems. Not by a long shot.

This was in the news today.



Non Passaran's picture

Hey ORI, what happened to that "end-of-days scenario by mid June" of yours? 

I'm curious to learn more about your enlightened predictions!

Oh regional Indian's picture

Hey Non, it's all over bar the shouting, ne?


TWSceptic's picture

Unfortunately women can do that too.

The Count's picture

What? As if women can't fake relationships either.....P-lease!

otto skorzeny's picture

all the "cool kids" like Benny Shalom are doing it-why can't they?

falak pema's picture

it is for your export industry.

whatsinaname's picture

what does "sterilised" mean in the context of FX ?


Chaffinch's picture

+1 wotsinaname
I was hoping someone else would ask that question so I could read an enlightening answer!

Non Passaran's picture

Because it's so fucking hard to right-click and google it.

godzila's picture

just reading your wiki entry on the subject - most informative !

godzila's picture



I don't quite understand the notion of sterilized FX internvention ?!

bigwavedave's picture

Definitley Bullish

unununium's picture

Let's see.  The SNB is buying up European assets with clownfurter francs it produces by farting.

That is the ultimate goal of all fiat currency producers: to buy something for nothing. 

The poor SNB doesn't want to do it , but they just have to peg at 1.20?  They're faking all right.  They're faking their reluctance.

The truth is too simple.  It has to be obfuscated.


Catullus's picture

They not dumping money directly in the FX market!!! How dare they. This is sterilized. And will ultimately prove ineffective when my swaps don't roll! How dare they! They have no credibility. Commence printing immediately.

Trap door set.

RobotTrader's picture

Pretty much a non-stop chain of negative news, yet the market keep grinding higher and higher.


Oil held in check.

Gold down.

Bank stocks flying.

TPTB has everything under control.

DraginDickHedge's picture

RT...If I give you more Kool-Aid, would you bring back "Pink Bikini Girl", please? As a bonus, I'll intreoduce her to my Dragin Dick Elephant all ready to go as pictured !  I miss pink girl!

akak's picture

Yep, RobotLemming, "the market" (leave it to a stock pimp, and whore, to use such a general phrase to refer to one narrow definition) is sure "grinding higher" --- right back to where it was 5 1/2 years ago.  And even that is only in nominal terms, of course.  In REAL terms, it only continues to fall, having lost over almost 40% of its value in the last 12 years.  But keep holding those stocks, lemming --- the Dow will rise again!

(And don't forget to hold onto those Treasuries too --- they are risk free, LOL!)

LULZBank's picture

SNB is pursuing this peg with EUR to prevent balance sheet and asset revaluation losses by the Swiss Fund managers or the wealthy class, who hold sizeable investments in Euro denominated assets.

If EUR was to go down against the CHF, imagine the capital losses and balance sheet recessions of the Swiss investors.

Chaffinch's picture

OK - That explains why they are pursuing the peg. Part of the 'how' must be that they are selling CHF (currency and / or CHF denominated bills and bonds) - but what are they buying? Surely not euros and / or euro- denominated assets? They must know that the Euro is going to continue declining in the medium term? Are they buying dollars? A basket of currencies? Gold, by any chance?

LULZBank's picture

If you would see SNB's balance sheet, you will notice Gold and hows its appreciation is helping SNB offset some of EUR valuation losses.

They actually make a point of it on the release.

moskov's picture

EU should somehow invade Switzerland and Nationalise their money landgery criminal national bank to spread wealth to the world


Swiss does NOT derserve being rich by sucking dry the rest of the world

Ratscam's picture

you must be a resident of Delaware or Guernsey, Jersey, Singapore, Cayman or any other money laundering country. Try opening a bank account in Switzerland with your Russian rubbles and you will see how difficult it became for all the foreigners.

magpie's picture

Already has been threatened by Germany's future chancellor

ar01's picture

Can't the SNB just purchase other assets than EURs to keep the CHF value down? Is the concern that the more they buy EURs, the more CHFs are out there, leading to too much supply? If they instead bought physical/productive assets, can't they take advantage of their position with less downside? 

jimmyjames's picture

If they instead bought physical/productive assets, can't they take advantage of their position with less downside?


The Swiss have been hedging EUR reserves with JPY-

mark7's picture

Swiss will be fine, they screwed the Jews out of their money without somebody coming to "liberate" them :) That is quite hard trick to do, especially when some American Jews, whose second cousin died in Holocaust, demand to themselves whole city blocks in Poland or Ukraine.  

Snidley Whipsnae's picture

A bit off topic... If Iceland understands moral hazard, why doesn't the US/EU ?

"More Icelandic Bankers Arrested"

greggh99's picture

Why is it that the USD/JPY stays at 79 while the EUR/USD and the GBP/USD fluctuates up and down? Doesn't seem natural.

Vince Clortho's picture

Not much seems natural these days.


Its_the_economy_stupid's picture

So if LIBOR floated to it's actual level, then The cost of writing Eurobonds and Sovereign bonds would rise dramatically, thereby inviting risk on purchases, thus risk/reward would be reintroduced into the FX market and the Swiss wouldn't have to defend their currency against such rapid appreciation?

Taken another way, if LIBOR was reported accurately, mortgage borrowing costs would rise dramatically in the US as would corporate borrowing costs. The elderly would find return for their savings and not have to chae higher risk investments?

Looked at as a whole, LIBOR supression reporting has toally screwed the entire investing public, aided nations in unrepentant borrowing, helped drive the mortgage debacle to crisis, aided the governments in hiding the true nature of the economy for years, and thus has everyone in power from bankers, sovereigns and politico's participated in this undoing of the world's financial system?

Holy Crap!

It is now obvious to me that nothing will come of this.

Where's my bottle?

Snidley Whipsnae's picture

The BIG FIX...

"In a 28-page statement of facts relating to last week’s revelation that Barclays had been fined a total of £290m, the US Department of Justice discloses how a network of traders working on both sides of the Atlantic conspired to influence both the Libor and Euribor interest rates – the rates at which banks lend to each other. It was, in effect, a worldwide conspiracy against the free functioning of the market."

Part of a post from "Hang The Bankers" site... and...

"More significant, however, is the effect manipulating Libor would have on investment and pension funds who buy complex financial products – commonly known as derivatives – linked to interest rates.

At least one major financial institution – the US broker, Charles Schwab – alleges in a lawsuit filed in April that its “funds did not receive their rightful payments on those instruments” suggesting a plethora of similar lawsuits seeking compensation could soon be issued."


HD's picture


*Great reference Tyler and timely with the passing of Nora Ephron...

Miss Expectations's picture

Also confusing are all the naked guys faking bath salts.

slewie the pi-rat's picture

disinfo @ "for the floor to be credible..."  imo

NooooB's picture

It's just one more distortion on top of all the others propping up this shit show...

ZeroAvatar's picture

"I'll have what she's having!"

DraginDickHedge's picture

ZH ~ "I'll have whatever she is having!"

... It goes without saying that you and yours are brilliant on many levels (even transdimensional), but whoever envisioned the "faking it" caption with Sally's iconic moment, deserves some sort of Galactic Greatness Award!!!  Bravo!

Thanks for the laugh!


***Only two of the elephants legs are showing...yes his Di*k is dragin