SNB establishes framework for Expanded Liquidity Facility
The Swiss National Bank has further specified the framework for its announced Expanded Liquidity Facility (ELF), designed to provide rapid liquidity support for banks based in Switzerland. This standardized and scalable process, allowing the use of mortgage-backed securities and other collateral, is set to become productive in early 2027 after pilot testing.
A new pillar for bank liquidity
The Swiss National Bank (SNB) has detailed the operational framework for its Expanded Liquidität Facility (ELF), a crucial mechanism aimed at enhancing financial stability by offering rapid liquidity support to Swiss-based banks.
This facility introduces a standardized and scalable process, ensuring that participating banks can quickly access necessary funds against eligible collateral when required.
The SNB has specified that both mortgage-backed securities and other types of securities will be accepted as collateral.
The implementation plan includes a pilot testing phase with selected banks, in collaboration with SIX Terravis and SIX SIS, scheduled to run until mid-2026. Following successful testing, the ELF is slated to commence productive operations in early 2027, thereby strengthening the resilience of the banking system against potential liquidity shocks.
This proactive measure underscores the SNB's commitment to maintaining robust financial infrastructure.
Framework for bank participation
To facilitate bank participation, the SNB has issued several foundational documents.
These include guidelines providing an overview of the new liquidity framework and a detailed fact sheet specifying preparations, approved counterparties, and bank-specific ELF limits.
Banks must sign a participation declaration to initiate eligibility, committing to contractual terms and preparatory work.
Separate conditions define eligible collateral for both liquidity against mortgage-backed securities (LGHS) and liquidity against other securities (LGWS), detailing accepted types and applicable haircuts.
Loan terms, covering interest rates and maturities, are also outlined.
The full ELF documentation, including contracts and detailed instructions, is expected to be provided to approved banks by summer 2026.
Proactive move, but details pending
The SNB's move to formalize the ELF framework is a proactive step to bolster financial stability, particularly after recent market turbulences.
While the general structure is clear, the full impact on bank liquidity management will depend on the detailed conditions to be released.
This pre-emptive measure provides a crucial safety net, yet its effectiveness hinges on broad bank participation and seamless integration into existing systems.