It is a ‘hard’ floor because no participant in the interbank repo market is willing to lend reserves in the overnight segment at a rate below the rate that can be obtained by participating in our fine-tuning operations. However, we must not set this hard floor too high, as otherwise all banks would only trade with us. If we no longer had any interbank trades in the overnight repo market, SARON would be deprived of its calculation basis and quickly lose economic significance. How has the money market adapted to the new situation? We will close our speech with a discussion of how the money market has adjusted to the new situation with a positive policy rate and to our new way of implementing monetary policy. Page 7/10  The positive SNB policy rate took effect on Friday, 23 September, the first business day following the monetary policy assessment. On Slide 11, you can see that on 23 September, SARON – depicted by the red line – jumped all the way up to 0.38%. In other words, it moved to within just 12 basis points of the new policy rate, the blue line on the slide. Over subsequent days, SARON increased further and has remained close to our policy rate since then. In the first few days immediately after the rate hike, we conducted fine-tuning operations on a daily basis to set a hard floor on interest rates used in transactions in the overnight segment.
Maechler and Moser (2022) discuss the transition from Libor to SARON. We also remunerated reserves from January 2015 to September 2022. During this period, we paid negative interest on banks’ reserve holdings at the SNB. To reduce the burden for banks, we exempted reserves up to a bank-specific threshold from negative interest. Maechler and Moser (2020) discuss the SNB’s monetary policy implementation in the negative rate environment. Page 4/10  reserve requirement, so that the threshold generally does not match its reserve holdings. 9 As a result, there are two types of banks: those whose reserves exceed their thresholds, shown in the upper half, and those whose reserves are below their thresholds, shown in the lower half. The SNB now remunerates reserves up to the threshold, shown in dark blue, at the SNB policy rate, which is currently 0.5%. In contrast, the SNB remunerates reserve holdings that exceed the threshold, shown in light blue, at the SNB policy rate minus a discount. Currently, the interest rate on reserves above the threshold is 0%. For the remainder of this speech, we will refer to reserves above the threshold as ‘excess reserves’. Let us examine the banks with excess reserves more closely. As we just noted, part of their total reserves would be remunerated at 0%. These banks therefore have a strong incentive to lend some of their excess reserves to other banks, at an interest rate above 0%.