How Do Austrian Banks Fund Their Swiss Franc Exposure?

Raphael Auer, Sébastien Kraenzlin and David Liebeg ()
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David Liebeg: Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division

Financial Stability Report, 2012, issue 24, 54-61

Abstract: Austrian banks have traditionally issued large volumes of Swiss franc-denominated loans. Although new issuance has virtually stopped since 2008, the outstanding volume (CHF 81 billion at mid-2012) will continue to pose a challenge to financial stability at least in the coming decade. This study examines how Austrian banks have refinanced their Swiss franc positions and how this changed with the onset of the financial crisis. We document the importance and evolution of three main funding sources: (1) the secured and unsecured interbank money market, (2) Swiss franc-denominated bond issuances, and (3) central bank financing operations. Our findings are that while activity in the unsecured money market almost came to a halt around the collapse of Lehman brothers and the issuance of Swiss franc-denominated bonds also decreased, the cross-border repo market proved resilient. Moreover, an important role in dealing with the funding drought was played by central bank operations, namely repo operations by the Swiss National Bank (SNB) and swap facilities provided by the SNB and the ECB.

Keywords: foreign currency loan; banking supervision; banking sector stability; lender of last resort; refinancing; interbank market (search for similar items in EconPapers)
JEL-codes: E52 E58 F33 F36 G21 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (15)

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