This seems surprising at first glance but is attributable to the fact that banks tried to offset a further decline in their interest margin with increased income from credit business. Meanwhile, interest rates on mortgage loans are also lower than before the introduction of negative interest. Thus, we can conclude that taking a policy rate into negative territory has a similar effect, in terms of transmission to other interest rates, to cutting a policy rate in positive territory. Although interest rates have fallen, no significant increase in credit growth has been observed over the last two years. The volume of bank loans to businesses and households has risen further, as you can see in chart 10, but credit growth has weakened. This slowdown in growth is particularly evident among loans to private, non-financial corporations. However, the picture is different for companies that are able to finance themselves via the capital market, as chart 11 shows. Domestic non-financial corporations have exploited the low capital market interest rates and issued more bonds since the introduction of the negative interest rate. As a preliminary conclusion, we may state that the negative interest rate in Switzerland principally operates via the exchange rate channel. Together with our willingness to intervene in the foreign exchange markets, it has helped to ensure that the Swiss franc has not strengthened further despite heightened uncertainty, for example in the wake of the British EU referendum.
Negative interest also puts a strain directly on banks, and indirectly on pension funds and life insurance companies, which worry about their profitability and about meeting their obligations. As I have mentioned, the SNB takes these concerns very seriously. Yet the challenges now facing pension funds are not caused first and foremost by monetary policy. Rather, their problems stem from the fact that pension funds have to achieve returns that are nominally fixed and were set when the equilibrium interest rate was higher. For banks, the negative interest rate undoubtedly represents a cost because they have to pay interest on their deposits at the SNB. However, the SNB grants a generous exemption threshold, which reduces the effective interest rate burden for the banking sector. These exemption thresholds give banks the freedom to decide whether – and to what extent – they should pass on negative interest to their customers. From a financial stability perspective, it is not negative interest per se which poses a challenge, but rather the low level of interest rates more generally. It is conceivable that low interest rates will lead investors to take greater risks. This can result in imbalances developing on the real estate and mortgage markets. In Switzerland, a variety of measures have been implemented since 2012 – the countercyclical capital buffer for instance – with the aim of reducing the associated financial stability repercussions. Since then, the pace of growth on the real estate and mortgage markets has slackened somewhat, although mortgages continue to grow faster than GDP.