Since the absorbed liquidity is tied up in the form of securities, the banks cannot use it either as a means of payment (like cash or sight deposits) or to satisfy their minimum reserve requirements. To the extent that SNB Bills are purchased by non-banks, customer deposits in the banking system decrease, thereby directly reducing the broader monetary aggregates. The decisive factor in determining the degree of monetary policy restrictiveness remains the level of interest rates on the money market. And we are able to control this level by tailoring the scope and conditions of our liquidity-absorbing operations accordingly. The shift in the liquidity regime has brought about a certain number of changes in SNB central bank operations with banks. For instance, we now normally only conduct operations with banks that need to place excess liquidity. The group of these banks is fairly large, consisting of 80 mainly domestic banks. Something that we no longer offer, by contrast, is regular refinancing. Banks now have to cover their refinancing needs via the money market. Refinancing through the SNB is available only in exceptional circumstances via the liquidityshortage financing facility, at a higher rate of interest. Access to this facility should thus be part of domestic banks’ own liquidity arrangements. A further effect of the regime shift on the money market is that the SNB pays the banks interest for liquidity-absorbing operations, whereas previously it received interest payments for providing liquidity.
Jean-Pierre Danthine: Swiss monetary policy and Target2-Securities Introductory remarks by Mr Jean-Pierre Danthine, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 16 December 2010. *  *  *  My remarks today will focus on three topics. I will start by looking at the situation on the international financial markets. I will then speak about the SNB’s own financial market activities in connection with the two core tasks of monetary policy implementation and foreign exchange reserves management. Finally, I would like to briefly discuss the planned panEuropean securities settlement system, Target2-Securities. International financial markets The situation on the international financial markets reflects the gradual global economic recovery. At the same time, these markets continue to be affected by the fallout from the financial crisis and by doubts as to whether the current global economic recovery will be robust enough to reduce the existing financial imbalances. On the stock markets, volatility has trended downwards over the past half-year, but has remained high. Shares and corporate bonds have benefited from investors’ growing risk appetite, the ongoing expansionary monetary conditions and good corporate results. On the bond markets, by contrast, uncertainty has, if anything, grown. With the global economic recovery, yields on long-term government bonds have picked up from their low levels. In Europe risk premia for heavily indebted sovereigns have risen markedly. The imbalance in many government budgets has taken problematic proportions.