However, despite this method of stating assets in the balance sheet at amortised cost, the StabFund had already used up its equity capital by the end of March. Up until that point, it had been necessary to make value adjustments amounting to roughly USD 5 billion. Nonetheless, it still looks as though the StabFund will ultimately be able to pay back the loan. This is because, on the one hand, markets can recover; the positive turn of events in April and May corroborates this. On the other hand, the assets have been generating relatively robust cash flows until now. Owing to interest payments and loan repayments, the SNB loan has already been reduced considerably. By mid-May, it came to only USD 23.7 billion. In addition, the original size of the StabFund has declined by around USD 6.7 billion as a result of sales, maturities and the closing out of derivatives positions. In mid-May, the size of the StabFund, as valued at amortised cost, was just roughly USD 32 billion, of which around USD 4 billion comprised contingent liabilities from derivatives. The performance of the stabilisation fund’s assets is due to be reassessed at the end of the second quarter. Approximately 80% of the SNB’s loan to the StabFund is denominated in US dollars. Originally, the SNB fully refinanced the dollar loan via the existing swap facility with the Federal Reserve. Now, less than 20% is refinanced thus, accounting at this stage for only about USD 3 billion.
As a result, the downward spiral, which was triggered by the collapse of Lehman Brothers last September and which, for a short while, even threatened to bring the global financial system crashing down, has come to halt. After having climbed to unsustainable highs in recent years, the prices of many investments fell to extremely low levels during the turmoil this past winter. The rapid recovery in the financial markets since March must also be partly regarded as a correction of previous excesses. Furthermore, the extremely expansionary monetary policy being pursued worldwide is likely to have also contributed to calming the situation. However, the recovery in the financial markets should not conceal the fact that uncertainty is still high. How sustainable the shift in market sentiment really is remains to be seen. The risk of suffering a setback remains correspondingly high. The SNB’s unconventional monetary policy measures At our quarterly assessment in March, we were confronted by the need to once again significantly expand our monetary policy. Since the repo rates were already practically at zero, we had to resort to unconventional monetary policy measures. We decided to conclude longer-term repo transactions on the one hand, and to purchase foreign currencies and Swiss franc bonds on the other. By simultaneously intervening in the money, foreign exchange and capital markets when necessary, a strong and broad-based monetary policy impact can be generated, without leading to any major distortions in the markets concerned. Allow me here to add a few remarks on our foreign currency and bond purchases.