Lot's of discussions on Fintwit around SNB's use of the USD swap line with the Fed.
Here a quick thread to explain this, but without the Fintwit conspiracy theories π
Here a quick thread to explain this, but without the Fintwit conspiracy theories π
As @JeffSnider_AIP showed, banks in Switzerland started borrowing USD from SNB last month. SNB raises these dollars from the Fed through the USD swap lines that these two (and other) central banks have. This week roughly 6bn were borrowed, last week roughly 3bn. 
What's important to recognize is that the FX market has de facto become an attractive source of funding for Swiss banks. The mechanics are tedious, but are roughly as follows:
Domestic banks raise CHF through 1-week USD repos with SNB. Banks are loaned USD and swap them for CHF at around 20bps. SNB conducts daily 1-week CHF repo auctions at 45 bps. Banks can thus earn a profit of 25bps by lending CHF via the FX market back to SNB via CHF repo auctions
For those interested, the mechanism was actually laid out by #Zoltan about 2 years ago, see here: research-doc.credit-suisse.com/docView?languaβ¦
Hence, in my view this drawing from USD swap lines is primarily a reflection of a spread pick-up in FX markets, rather than a sign of liquidity issues in the domestic banking sector.
Happy to discuss! @jnordvig @JanssenAK @fabiocanetg
Happy to discuss! @jnordvig @JanssenAK @fabiocanetg
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