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%.
11 This outcome would be undesirable for us, as we aim to steer secured short-term Swiss franc money market rates so that they remain close to the SNB policy rate. By reducing the stock of excess reserves, we also reduce the supply of reserves in the interbank money market. This lets us steer money market rates closer to our policy rate of 0.5%. That is precisely what the second element of our implementation approach accomplishes. To absorb excess reserves, we use open market operations. Specifically, we use term repos and SNB Bills, the latter being marketable debt claims on the SNB. 12 Term repos have a term of one week and are auctioned daily. SNB Bills, on the other hand, are auctioned on a weekly basis and with different terms from week to week. As Slide 8 shows, the effect of these operations is to replace the light-blue shaded rectangle with a light-green one. Our reserve-absorbing operations are offered with interest rates that are close to 0.5% on an overnight-equivalent basis. 13 This makes them particularly attractive to banks that hold excess reserves. By purchasing the instruments we offer, these banks can reduce the stock of excess reserves, which would otherwise be remunerated at 0%. It is important to emphasise that both interbank trading and the SNB’s reserve-absorbing operations are mechanisms for reducing the stock of excess reserves, possibly to the point where all excess reserves have been ‘soaked up’. How does the SNB’s approach determine money market rates?