In a well-attended webinar, SFI Professor Philippe Bacchetta from the University of Lausanne explored the questions of under which circumstances the Swiss economy could return to positive interest rates and what consequences negative interest rates generally entail. He began his presentation by pointing out that negative interest rates is a global phenomenon. Interest rates in Switzerland, meanwhile, had long been much less likely to move into negative territory than those in other developed economies. "These times are now over. Switzerland is no longer an interest rate island," Prof. Bacchetta noted, adding that the ongoing COVID-19 pandemic and the associated economic uncertainties suggest that this period of negative rates is likely to last even longer. Nevertheless, his research finds no immediate negative effects on the profit situations of banks.

This does not, however, mean that there is an encouraging outlook for the banking sector the respected industry expert Dr. Michael Steiner, CEO of acrevis Bank AG, explained in his presentation, which followed. "An increase in interest rates to positive territory would be important—the sooner the better," was his core statement, an observation based on the numerous implications that the current interest rate level has for banks' operational business. Neither does Steiner assume that there is a causal relationship between profit developments at banks and the current low interest rate environment: "On the contrary, profits have increased." But he also pointed out that banks are not all affected to the same extent by the current rate regime: "Private banks in particular, with high cash deposits, are disproportionately affected, especially since they usually do not engage in the lending business that would cushion the impact of negative interest rates. Unlike universal banks, they have little to no options to substantially reduce their liquidity and thus their interest burden, for which they pay a high price, or rather the costs of which they have to pass on to their customers."

The event was moderated by Mark Dittli, an accomplished business journalist (the market). Following the two presentations Dittli took critical questions and comments from participants, the vast majority of whom agreed that the longer it takes to move away from today's negative interest rate environment, the more expensive that exit is going to be for the banking sector. In the concluding Q&A session, the two speakers agreed with one another that the possibility of a prolonged period of negative rates cannot be completely ruled out—even if, or even though, it would be likely to entail increasing risks for the financial industry. In this context, the danger of so-called zombie companies, which are artificially kept alive by cheap loans, was also specifically addressed, the panelists agreeing that the potential for such an undesirable development is low, at least in Switzerland. The event was drawn to a close by the moderator, who thanked all participants for a lively and interactive exchange.
 

You can find the SFI Public Discussion Note on the topic here in English | French | German | Italian.

View the press release documents here.