Zurich (Reuters): The only sure way for the Swiss National Bank to cool the booming Swiss mortgage market is by raising interest rates, the chief of Raiffeisen Switzerland has said, adding that greater self-regulation by banks would have little effect.
The Swiss government, at the request of the central bank, is already forcing Swiss banks to maintain extra capital against the mortgages they hold, after ultra-low interest rates triggered a strong rise in real estate prices and mortgage lending in Switzerland in recent years. The Swiss National Bank (SNB) has said it is ready to explore alternative measures to rein in the market if this so-called counter-cyclical capital buffer does not work.
“Further measures or stricter self-regulation are pointless in our view,” Raiffeisen Switzerland’s chief executive Pierin Vincenz said. “The only measure the SNB can take that has been proven to work is raising interest rates. The counter-cyclical capital buffer is just a substitute measure.”
Yet the SNB cannot easily raise rates as this would clash with its efforts to cap the Swiss franc. The central bank began holding down the safe-haven unit in 2011 after investors fleeing the euro zone crisis bid the currency up to record levels.
Vincenz, whose bank holds a 16 per cent share of Switzerland’s mortgage market, said it was too early to judge the success of the SNB’s buffer, but in terms of equity capital, the macro-prudential measure would only affect a few banks.
“This is because the banks that are very active in the mortgage business often have excess capital at their disposal,” Vincenz said.
These considerations have led Raiffeisen to engage in talks with Swiss financial regulator FINMA, Vincenz said.
