Central bank says UBS rescue loan repaid

The Swiss National Bank says that a massive loan to rescue UBS bank during the financial crisis has been paid off and Switzerland's largest bank can now repurchase its once toxic assets.

Central bank says UBS rescue loan repaid
Photo: Swiss National Bank

SNB said on Friday that its stabilization fund, or StabFund, had by Thursday completely paid off the last portion of a $25.8-billion loan issued in 2008 to save UBS, which was among the global banks hardest hit by the crisis.
The completion of the final payment of 1.2 billion Swiss francs ($1.3 billion) means that UBS will now be permitted to go ahead with its plan to repurchase once-toxic assets, central bank spokesman Walter Meier told AFP.
The price will be set by independent agents who will assess the current value of the assets, the central bank said in a statement.

UBS lost billions of dollars in the United States subprime home-loan crisis and the ensuing financial turmoil.

A collapse of the bank would have been catastrophic for the Swiss economy.
In a rescue operation, the central bank set up the StabFund to take over assets considered toxic worth $38.7 billion.
The central bank also pumped $3.9 billion into the bank, which UBS has repaid to ensure its right to repurchase its assets once the loan had been reimbursed.
When it published its results last month, UBS said it planned to take advantage of this repurchasing option in the final quarter of the year.

According to the agreement, the central bank will receive the first $1 billion of the remaining equity capital in the StabFund, while it will split the rest equally with UBS.

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Why is the demand for 1,000-franc banknotes growing in Switzerland?

Large-denomination banknotes, like the 1,000-franc note, are rarely used for everyday transactions in Switzerland. So why are they becoming more popular?

Why is the demand for 1,000-franc banknotes growing in Switzerland?
The kind of banknotes the Swiss like to stash away. Photo by AFP

The demand for 1,000-franc notes has risen in the past months, data from the Swiss National Bank (SNB) indicates.

CHF1,000 converts to approximately €925.75, £824,63 or $US1126.98. 

Whether withdrawing the money from an ATM machine or directly from a bank, customers request large-bill denominations more often than before.

“We do know there is more cash being currently withdrawn in large notes, but it changes hands less often” Sarah Lein, a monetary policy expert from the University of Basel told SRF public broadcaster.

This means the money is not being spent but stashed away.

“We can conclude that some large notes end up in a safe”, she added.

READ MORE: Switzerland’s economy forecast to recover 'from summer onwards' 

The reason, she said, is that many banks charge their customers negative interests on large deposits.

“Therefore, it could be cheaper to simply withdraw the cash in large notes and keep it in a safe, especially since inflation has been extremely low for a long time”, Lein added.

This is not unusual — in times of crisis, more cash is often in demand.

But could this cause the shortage of 1,000-franc bills?

That is not likely to happen, Lein pointed out.

“Both the central and commercial banks have enough cash stored in their vaults to meet such demand. So there is always enough money available”, she said.

There is about 48.6 billion francs floating around in the form of 1,000-franc notes, constituting 59 percent of all Swiss notes in circulation. 

It is the world’s second-largest denomination after Brunei's B$10,000 note.

READ MORE: What do people in Switzerland spend their money on?