Document Type

Case Study

Case Series

Central Bank Swap Lines


Prior to the Global Financial Crisis, Swiss banks made significant Swiss franc loans to financial institutions in several European countries. By the fall of 2008, many of those Swiss banks were unwilling or unable to continue refinancing those loans. In mid-September 2008, following the collapse of Lehman Brothers, short-term interest rates in the Swiss franc money market rose significantly. Banks throughout Europe, particularly in Poland and Hungary, had borrowed Swiss francs and lent them to households to buy real estate. As their domestic currencies lost value relative to the Swiss franc, a relative safe haven currency, borrowers in these countries began to default, and the lending banks lost money on the loans they had made. In October 2008, the Swiss National Bank (SNB) entered a swap arrangement with the European Central Bank (ECB) to provide Swiss franc liquidity to euro area banks. The SNB then announced similar Swiss-franc-for-euro swap arrangements with two non-eurozone central banks, the Polish central bank, Narodowy Bank Polski (NBP), in November 2008 and the Hungarian central bank, Magyar Nemzeti Bank (MNB), in January 2009. In each case, the borrowing central bank would offer Swiss francs to financial institutions within its borders in downstream auctions that coincided with the SNB’s domestic auctions. For the swaps in aggregate, the peak amount outstanding during the crisis period was about 39 billion Swiss francs (CHF; USD 34 billion) in March 2009, with most of that usage coming from the ECB. The SNB, ECB, NBP, and MNB announced the end of the downstream liquidity auctions in January 2010, by which time the condition of the European banking system had improved, interbank funding rates had fallen, and the swap lines were allowed to expire.