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How Do Austrian Banks Fund Their Swiss Franc Exposure?

Author

Listed:
  • Raphael Auer

    (International Trade and Capital Flows Unit)

  • Sebastien Kraenzlin

    (Money Market Unit)

  • David Liebeg

    (Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division)

Abstract

Austrian banks have traditionally issued large volumes of Swiss franc-denominated loans. Although new issuance has virtually stopped since 2008, the outstanding volume (CHF 81 billion at mid-2012) will continue to pose a challenge to financial stability at least in the coming decade. This study examines how Austrian banks have refinanced their Swiss franc positions and how this changed with the onset of the financial crisis. We document the importance and evolution of three main funding sources: (1) the secured and unsecured interbank money market, (2) Swiss franc-denominated bond issuances, and (3) central bank financing operations. Our findings are that while activity in the unsecured money market almost came to a halt around the collapse of Lehman brothers and the issuance of Swiss franc-denominated bonds also decreased, the cross-border repo market proved resilient. Moreover, an important role in dealing with the funding drought was played by central bank operations, namely repo operations by the Swiss National Bank (SNB) and swap facilities provided by the SNB and the ECB.

Suggested Citation

  • Raphael Auer & Sebastien Kraenzlin & David Liebeg, 2012. "How Do Austrian Banks Fund Their Swiss Franc Exposure?," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 24, pages 54-61.
  • Handle: RePEc:onb:oenbfs:y:2012:i:24:b:1
    as

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    File URL: https://www.oenb.at/dam/jcr:e8b9922e-ddb0-458b-99b0-25bc730e4a9d/fsr_24_special_topics_01_tcm16-252039.pdf
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    References listed on IDEAS

    as
    1. Beer, Christian & Ongena, Steven & Peter, Marcel, 2010. "Borrowing in foreign currency: Austrian households as carry traders," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2198-2211, September.
    2. Kraenzlin, Sébastien & Nellen, Thomas, 2015. "Access policy and money market segmentation," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 1-12.
    3. Basil Guggenheim & Sébastien Philippe Kraenzlin & Silvio Schumacher, 2011. "Exploring an uncharted market: Evidence on the unsecured Swiss franc money market," Working Papers 2011-05, Swiss National Bank.
    4. Raphael Auer & Sebastien Kraenzlin, 2011. "International liquidity provision during the financial crisis: a view from Switzerland," Review, Federal Reserve Bank of St. Louis, vol. 93(Nov), pages 409-418.
    5. Johannes Pann & Reinhardt Seliger & Julia Übeleis, 2010. "Foreign Currency Lending in Central, Eastern and Southeastern Europe: The Case of Austrian Banks," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 20, pages 56-76.
    6. repec:onb:oenbwp:y:2010:i:20:b:1 is not listed on IDEAS
    7. Sébastien Philippe Kraenzlin & Benedikt von Scarpatetti, 2011. "Bargaining Power in the Repo Market," Working Papers 2011-14, Swiss National Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Fischer, Andreas M. & Yeşin, Pınar, 2022. "Foreign currency loan conversions and currency mismatches," Journal of International Money and Finance, Elsevier, vol. 122(C).
    2. Signe Krogstrup & Cedric Tille, 2015. "On the roles of different foreign currencies in European bank lending," IHEID Working Papers 17-2015, Economics Section, The Graduate Institute of International Studies, revised 31 Aug 2015.
    3. Kraenzlin, Sébastien & Nellen, Thomas, 2015. "Access policy and money market segmentation," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 1-12.
    4. Michael Sigmund, 2021. "Assessing macro-prudential policies: the case of FX lending," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(2), pages 316-359, April.
    5. Alin Marius Andries & Andreas M. Fischer & Pinar Yesin, 2015. "The impact of international swap lines on stock returns of banks in emerging markets," Working Papers 2015-07, Swiss National Bank.
    6. Esther Segalla, 2015. "When Austrian banks cross borders," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 29, pages 110-121.
    7. Sophia Döme & Stefan W. Schmitz & Katharina Steiner & Eva Ubl, 2016. "The changing role of macroprudential policy in Austria after World War II," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 163-189.
    8. Viktória Vidaházy & Pınar Yeşin, 2020. "Deleveraging and Foreign Currency Loan Conversion Programs in Europe," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(2), pages 215-241, June.

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    More about this item

    Keywords

    foreign currency loan; banking supervision; banking sector stability; lender of last resort; refinancing; interbank market;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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