A rare foreign exchange swap between the Swiss and US central banks is probably part of efforts by Switzerland to weaken its currency, not a sign of trouble in the Swiss banking system, commercial bankers and analysts said on Friday.
The US Federal Reserve revealed on Thursday that it had provided $200 million of liquidity to the Swiss National Bank in the week ended August 17 - the first time that the SNB had tapped its swap line with the Fed since it was reopened in May 2010.
In jittery global markets, the news fuelled speculation that the SNB might be reacting to difficulties faced by a Swiss commercial bank in obtaining dollar funding.
But traders and analysts said there were no signs that Swiss banks were struggling to obtain dollar funds and that instead, they believed the SNB was expanding its dollar supplies as part of a drive to weaken the Swiss franc , which hit a record high against the euro on August 9.
The country's two big banks, UBS and Credit Suisse, both said they had not made any use of the swap facility, while Julius Baer, Switzerland's largest dedicated wealth manager, also said it had not used it.
"There's no stress. Could have been a non-Swiss bank, and maybe it was just the national bank testing the waters," one boutique money market trader said.
The SNB's swap with the Fed occurred after it allotted $200 million to an institution in a weekly repurchase offer on August 10, traders noted. At its next offer, conducted on Wednesday this week, there was no demand for dollars.
"The fact it didn't happen again more recently suggests there aren't any funding pressures and probably doesn't point to any deterioration in the funding situation," Credit Suisse economist Fabian Heller said.
The SNB has slashed Swiss franc interest rates to zero and is flooding the market with francs by rapidly expanding banks' sight deposits as part of an effort to make holding francs more expensive. Sight deposits are accounts of commercial banks with the central bank, and constitute a large part of the liquidity in the banking system.
The SNB's tools for expanding sight deposits are foreign exchange swaps and repurchases of its own debt. Earlier this week, the SNB expanded sight deposits to 200 billion Swiss francs from 120 billion francs.
"The total size of $200 million is indicative that this is not a major event, especially at a time when the SNB is expanding its sight deposits by 80 billion Swiss francs from one week to another," UBS analyst Reto Huenerwadel said.
Since hitting its all-time high, the franc has weakened about 10 percent against the euro. Strong verbal warnings by the SNB and growing political support in Switzerland for action against excessive currency strength have contributed to the franc's retreat.
Some market participants have speculated that the SNB could take more radical action to curb the franc, perhaps as soon as this weekend. But given its success so far, it is unlikely to take fresh steps so soon, several analysts said.
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