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The financial dictionary now contains OVER 3000 financial terms
Glossary
Advances against securities
Advances against securities imply that the debtor deposits certain
securities as collateral. Once such collateral has been provided, the
National Bank fixes a Lombard loan limit for the respective bank. If a
bank is in need of liquidity it may borrow on collateral on its own
initiative up to the limit fixed and at the official Lombard rate.
Lombard loans should be used only for short periods in order to tide
over unforeseen liquidity shortages. In addition to the Lombard loan,
the banks have been able to avail themselves of repos at a special rate
as an additional liquidity-shortage financing facility since the new
National Bank Act entered into force on 1 May 2004 (Guidelines on
monetary policy instruments).
Agencies
The agencies are cash distribution services operated by cantonal banks
on behalf of the National Bank. These agencies are responsible for the
issuance and redemption of cash at their place of business. (The
issuance and redemption). The National Bank's network of cash
distribution services comprises its three own bank offices and fourteen
agencies.
Article IV Consultation
The International Monetary Fund (IMF) monitors a country's economic
development on a regular basis (usually once a year) and assesses the
impact of its policies on the exchange rate and the balance-of-payments.
The assessment is carried out according to the provisions of article IV
of the IMF Charter. IMF staff compile a report which is discussed in the
Executive Board. The recommendations of the Executive Board are then
transmitted to the country in question and a summary of the discussion
and the report is published upon request.
B
Balance of payments
The balance of payments comprises the cross-border exchange of goods and
services, labour income and investment income as well as financial flows
to and from other countries during a certain period. The development and
the structure of the balance of payments provide information on a
country's foreign trade and investment relations. The methodological
basis of balance of payments statistics is the Balance of Payments
Manual of the International Monetary Fund. The Swiss balance of payments
may be divided into four sections: the current account, the capital
transfer account, the financial account and net foreign holdings of the
National Bank. In the balance of payments, the statistical difference
between the total of inflows (credit items: current account earnings and
capital imports) and the total of outflows (debit items: current account
expenditures and capital exports) is designated residual item (net
errors and omissions). Balance of payments transactions are entered
twice in the books so that arithmetically the balance of payments is
balanced in principle. In practice, however, this basic rule cannot
always be fully applied due to the diversity of external relations and
statistical sources.
Bank for International Settlements (BIS)
Founded in 1930, the BIS has three main tasks today. First, it promotes
cooperation between central banks and international organisations. To
this end, the central bank governors of the G-10 countries meet
regularly at the BIS for an exchange of information. The BIS maintains
the secretariat for many of the committees and groups of experts.
Together with the International Monetary Fund (IMF), the BIS has been
coordinating technical assistance to the former communist countries of
Eastern Europe and the former Soviet Union for some years now. Second,
numerous bilateral balance-of-payments aid packages have been negotiated
under the auspices of the BIS. In some cases, the BIS also granted such
loans with a guarantee of the participating central banks. Third, the
BIS administers a part of the international reserves for individual
central banks.
Banking Law
The aim of the Swiss Banking Law (Federal Law on Banks and Savings Banks)
is to protect creditors and to strengthen the Swiss financial centre. It
sets out rules on authorisation for the commencement of banking
activities, on the banking activities themselves and on the presentation
of accounts. It also stipulates that the audits required under banking
law should be conducted by private auditors and defines the Swiss
Financial Market Supervisory Authority (FINMA) as being responsible for
supervising the banks.
Banknote monopoly
The Swiss Federal Parliament, under article 1 of the National Bank Act
of 1905, stipulates that the Swiss National Bank (SNB) has the exclusive
right to issue banknotes. On 20 June 1907, the day it took up business,
the SNB issued its first banknotes (interim notes). Currently, the
banknote monopoly is embodied in article 4 of the National Bank Act.
Banknote series
A banknote series (or issue) consists of the different denominations,
all of which are developed, designed and produced at the same time. Up
until now, there have been eight banknote series in Switzerland. The
notes of the first series were put into circulation in 1907 and were
considered interim notes. Not all notes of the eight banknote series
were actually in circulation. The 4th and 7th series are considered
reserve series.
Basel II
Basel Capital Adequacy Accord
Basel Capital Adequacy Accord
Issued by the Basel Committee on Banking Supervision, the Basel Capital
Adequacy Accord aims to increase the stability of the international
financial system and put the banks on an equal competitive footing. The
first Basel Accord, passed in 1988, focused on the provision of minimum
cover for credit risks. The revision of this Accord («Basel II») has
been in progress since 1998. In addition to the first pillar relating to
minimum cover, the revision is adding two other pillars relating to
assessment procedures under regulatory law and to the effective
involvement of market discipline.
Basel Committee on Banking Supervision
The Basel Committee was founded in 1974 by the Bank for International
Settlements (BIS) as a response to the collapse of Bank Herstatt, which
was brought about by currency speculation. The Committee is made up of
representatives of the central banks and banking supervisory authorities
of the Group of Ten (G-10) countries plus Luxembourg and Spain.
Switzerland is represented by the Swiss Financial Market Supervisory
Authority (FINMA) and the Swiss National Bank. The resolutions and
recommendations of the Basel Committee are highly regarded worldwide.
They are not binding, however, as the Committee does not exercise a
supranational banking supervisory function. The Basel Core Principles
for Effective Banking Supervision and Basel Capital Adequacy Accord are
of particular importance.
Basel Core Principles for Effective Banking Supervision
In 1997, the Basel Committee on Banking Supervision, in conjunction with
supervisory authorities from non-Group of Ten (G-10) countries –
especially those from emerging markets – issued 25 Core Principles for
effective banking supervision. The aim of these principles is to help
supervisory authorities and law-makers in the various countries to
assess their supervisory systems and make improvements wherever
necessary. They thus set out minimum requirements for the supervision of
lending institutions.
Big banks
In terms of total assets, earnings and personnel numbers, the big banks
constitute the biggest group of banks in Switzerland. These are
universal banks offering a full range of banking services both in
Switzerland and also – unlike most of the other groups – abroad. In
addition to lending, the big banks play a key role in interbank business,
asset management and derivatives transactions.
Board of Governors
The Board of Governors is the highest body of the International Monetary
Fund (IMF). It delegated a large part of its executive authority to the
Executive Board.
Bretton Woods institutions
In the summer of 1944, representatives from 45 nations met in Bretton
Woods, a small town in the US state of New Hampshire, for the United
Nations Monetary and Financial Conference. The Bretton Woods conference
led to the foundation of the International Monetary Fund (IMF) and the
World Bank in 1945. The Bretton Woods institutions are specialised
agencies of the UN and their relationship is governed by an agreement
approved by the General Assembly.
C
Cantonal banks
The key characteristic of a cantonal bank is that the canton holds more
than one third of its share capital and of the votes. Most of the
cantonal banks are now universal banks at which savings and mortgages
account for a high proportion of business. The canton may assume
liability for their debts, either in full or in part.
Capital market
Like the money market, the capital market is a market for borrowing and
investing medium- to long-term funds. As a rule, medium-term capital is
committed for a period of one to four years, long-term capital for five
years or more. A distinction has to be made between the bond market or
long-term debt market, in which fixed-interest debt certificates (bonds)
are issued and traded, and the share market for dividend paper (shares).
Capital transfer account (balance of payments)
The capital transfer account forms part of the balance of payments.
Capital transfers constitute counterentries for financial flows that are
not matched by any form of economic return. The Swiss balance of
payments, for example, includes debt remission to developing countries
and capital transfers relating to development aid and the global
agreement between banks in its capital transfer account.
Cash-handling companies
Cash-handling companies are private firms that take care of banknote
sorting on behalf of third parties (banks, Swiss Post, businesses).
These companies subsequently hand over excess or damaged banknotes to
the Swiss National Bank.
Central Bank
The central bank (note-issuing bank) is the monetary authority of a
country. The main tasks of the Swiss National Bank (SNB) include
conducting monetary policy and facilitating payment transactions (SIC).
The central bank has the sole right to issue banknotes (note-issuing
privilege).
Clearing/Clearance
The process of transmitting, reconciling and, in some cases, confirming
payment orders or security transfer instructions prior to settlement,
possibly including the netting of instructions and the establishment of
final positions for settlement.
Commercial banks and stock exchange banks
Most commercial banks are universal (full-service) banks. Their field of
business includes commercial loans for trading, industrial and
commercial companies as well as mortgage loans. Stock exchange banks
specialise in stock exchange, securities and asset management activities.
Constituency
Together with Poland, Serbia and Montenegro, Azerbaijan, Kyrgyzstan, the
Republic of Takjikistan, Turkmenistan and Uzbekistan, Switzerland
constitutes one constituency in the Executive Board of the International
Monetary Fund (IMF) and the World Bank. The combined proportional voting
power of this constituency is 2.88%, with our country's share being
roughly 1.63%.
Consumer price index (CPI)
The consumer price index (user price index, national consumer price
index) measures the price of a basket of goods (commodities and services)
which is assumed to represent the average consumption habits of private
households. The consumer price index is thus a yardstick for the cost
development of the goods consumed (price level).
Current account
The current account is part of the balance of payments. It covers the
exchange of goods and services with other countries, cross-border labour
and investment income and current transfers. Current transfers are
entered in the balance of payments for the provision of goods and
services without an economic quid pro quo. In contrast, capital
transfers are entered in the balance of payments for the provision of
financial assets without an economic quid pro quo. The current account
is also designated as the "real section of the balance of payments" (in
contrast to the financial section in the financial account).
D
Data carrier exchange (DTA)
The data carrier exchange (DTA) is a system for the electronic
settlement of payment orders by means of credit transfer; the
transaction is initiated by the payer. Up to the end of 2005, the payer
created a payment order and submitted the data carrier (tape, cassette,
diskette) directly or via its bank to the data processing centre run by
Telekurs (now part of SIX Group). The data processing centre then
aggregated the payment orders for each bank and sent them to SIC for
settlement. In SIC, the account of the payer’s bank was debited and the
account of the payee’s bank credited. At the end of 2005, the Telekurs
data processing centre shut down its DTA operation. Now, DTA payments
are either submitted directly via the banks’ e-banking interface or
through SIX Interbank Clearing Ltd’s central submission channel,
payROUTE. Payments are settled in SIC individually as customer payments,
rather than in aggregated form as previously.
Deflation
Deflation is the opposite of inflation and denotes a continued decline
in the general price level over several periods. The deflation rate
measures the percentage decrease of the price index. Similar to
inflation, deflation leads to a rise in the purchasing power of money. (Disinflation)
Delivery versus payment
A link between a securities transfer system and a funds transfer system
that ensures that delivery occurs if, and only if, payment occurs.
Denomination
A banknote series consists of different denominations, each of which has
a different nominal value. The current banknote series consists of six
denominations of 10, 20, 50, 100, 200 and 1000 franc notes (The current
banknote series).
Direct debiting
System for the electronic voucherless processing of payment orders by
means of debiting orders in which the issuer of the invoice sets off the
payment (debit transfer). A requirement for direct debiting, on the one
hand, is the authorisation of the account holder and, on the other hand,
the fulfilment of contractual obligations by the recipient of the
payment.
Discount rate
The discount rate is the rate laid down by the National Bank in
discounting and applied as interim discount rate. Currently, due to the
declining significance of discounting business, the National Bank no
longer fixes a discount rate.
Discounting
The National Bank may provide discount credits by buying securities
before they mature. It deducts an interim interest charge (discount rate)
for the residual maturity. The discounted securities are held in the
National Bank's portfolio until maturity and are then presented for
payment. Discounting has lost its practical significance in recent years.
The National Bank is not obliged to grant discount credits. It retains
the right to discount securities in special circumstances in which it is
willing to extend credit to the banks on a broad basis.
Disinflation
Disinflation designates a decline in inflation, but not a fall of the
price level (deflation). A disinflation policy aims at reducing the
inflation rate in an economy. (sacrifice ratio)
E
EFTPOS (Electronic funds transfer at the point of sale)
Refers to the use of payment cards at a retail location (point of sale)
where the payment information is captured by electronic terminals and
transmitted to the corresponding banks.
Electronic money, e-money
Monetary value stored electronically on a device such as a chip card or
a PC hard drive.
euroSIC
euroSIC is a real-time gross settlement system (RTGS) with a queuing
mechanism, and is used for euro payment transactions between Swiss
financial institutions. euroSIC, which is essentially a copy of the
Swiss franc SIC system, settles through the accounts of SECB Swiss Euro
Clearing Bank. euroSIC is operated by SIX Interbank Clearing Ltd. By
virtue of SECB Swiss Euro Clearing Bank’s access to TARGET2, euroSIC
also facilitates the settlement of cross-border transactions in euros.
Moreover, euroSIC is linked to the Swiss stock exchange (SIX Swiss
Exchange) and the SECOM securities settlement system.
Exchange rate
The exchange rate denotes the exchange relation between two currencies.
It is expressed as the price of a currency in units of another currency.
If the price of a foreign currency unit is expressed in the domestic
currency, this is called a quotation (e.g. 1.40 CHF per USD); if,
however, the price of a domestic currency unit is expressed in foreign
currency, this is known as an indirect quotation (e.g. 0.71 USD per CHF).
In Switzerland it is usual to talk about a quotation. (monetary value)
Executive Board
The Executive Board is the International Monetary Fund's (IMF) highest
executive body. It consists of 24 members. The Swiss-led constituency is
represented by its Swiss Executive Director.
External value of money
Monetary value
Extraordinary liquidity assistance
In accordance with art. 5 para. 2 (a) and art. 9 para. 1 (e) of the
National Bank Act, the Swiss National Bank (SNB) also acts as lender of
last resort. In this function, it can provide extraordinary liquidity
assistance for domestic banks if they are no longer able to refinance
their operations on the market. Extraordinary liquidity assistance can
only be provided if the bank or group of banks requiring credit is (i)
of systemic importance and (ii) solvent and if (iii) the liquidity
assistance is covered by sufficient collateral.
F
Federal bond
A federal bond is a fixed-interest debt certificate (bond issue) of the
Swiss Confederation employed by the Confederation for medium-and long-term
borrowing in the capital market.
Federal Mint
swissmint
Finality (payments)
Settlements in payment systems which are both irrevocable and
unconditional are designated as final.
Financial account
The financial account forms part of the balance of payments. It records
the origin and settlement of cross-border financial claims and
liabilities. Depending on the investment motive, a distinction is made
between direct investment, portfolio investment and other investments (mainly
bank loans).
Foreign banks
Foreign banks are foreign-controlled banks and the branches of foreign
banks. Foreign-controlled banks are defined as banks under Swiss law,
where the main shareholder is non-Swiss or where a foreign shareholder
has a controlling interest in the bank. Branches of foreign banks,
meanwhile, are bank branch offices that are legally dependent on their
foreign “parent companies”. All members of this mixed group of foreign
banks have two features in common: most of their clients are situated
abroad and these banks are all engaged in international banking
operations.
Foreign exchange
Foreign exchange comprises financial claims denominated in foreign
currency and payable abroad. Examples are foreign sight and time
deposits and cheques denominated in foreign currency.
Foreign exchange swap
A foreign exchange swap is a combination of a spot transaction and a
forward transaction in foreign exchange. In case of a liquidity swap,
the National Bank acquires foreign exchange from commercial banks
against Swiss francs for a limited period. At the end of the period the
transaction is reversed at a rate agreed upon in advance. In case of a
mopping-up swap, the SNB in the same way temporarily buys Swiss francs
against foreign exchange. Swap transactions are very flexibly manageable
with regard to maturities and rates. The National Bank normally selects
maturities of between one week and six months.
G
General Arrangements to Borrow (GAB)
In exceptional circumstances and in the event of a shortage of funds,
the General Arrangements to Borrow permit the International Monetary
Fund (IMF) to borrow funds in the amount of SDR 17 billion from the
Group of Ten countries according to a distribution key agreed upon in
advance. The IMF may only have recourse to the GAB in exceptional crises,
if it can prove a liquidity shortage and if the stability of the
international monetary system is threatened. The loans are granted in
the respective currency of the country and are subject to stringent
conditions. The National Bank is a participating institution in the GAB.
Since 1997, the General Arrangements to Borrow (GAB) have been
supplemented by the New Arrangements to Borrow (NAB).
Gross settlement system / RTGS (real-time gross settlement)
A gross settlement system is a payment system in which money transfers
are processed individually and sequentially without netting claims. In
real-time settlement systems, payments are processed and settled
continuously during the day. With this procedure so-called intraday
finality (finality) within payment systems is achieved.
Group of Ten (G-10)
The Group of Ten is an association representing the ten leading
industrial countries (Belgium, Canada, France, Germany, Italy, Japan,
Netherlands, Sweden, UK and the United States) and Switzerland. Under
the terms of the General Arrangements to Borrow (GAB) it has been
providing additional funds to the International Monetary Fund (IMF) in
exceptional circumstances and in the event of a shortage of funds since
1962. In addition, the Group of Ten is a forum for discussions on
economic and monetary policy issues between representatives of central
banks and finance ministries.
Groups of banks
For statistical purposes, the various banks are assigned to groups
according to specific criteria (nature of business, institutional
structure, geographical scope of business, size of total assets). The
groups are defined by the Swiss National Bank, which keeps the relevant
statistics. The Swiss banking system consists of the following groups:
big banks, cantonal banks, regional banks and savings banks, Raiffeisen
banks, other banks (including, in particular, commercial banks and stock
exchange banks, as well as foreign-controlled banks), branches of
foreign banks and private banks.
Guidelines on monetary policy instruments
The Guidelines of the Swiss National Bank (SNB) on monetary policy
instruments describe the use of monetary policy instruments. The
Guidelines, which have been prepared as a corollary to the monetary
policy concept already defined by the National Bank, describe the
instruments and procedures used for implementing monetary policy. They
set out in detail the transactions described in art. 9, para. 1 of the
National Bank Act that are at the SNB’s disposal for performing the
monetary policy tasks assigned to it. In particular, they specify the
terms on which the National Bank concludes transactions and the
procedures that are to be observed in such cases. Further, they specify
what security is eligible for monetary policy transactions with the SNB.
H
Hyperinflation
The term hyperinflation designates extremely high inflation. If the
monthly inflation rate exceeds 50 percent, this is generally referred to
as hyperinflation. This is equivalent to an annual inflation rate of 12
875 percent.
I
Important monetary policy data
On the first business day of each week, the National Bank publishes data
of the previous week that are relevant for monetary policy. The data
provide information on the implementation of monetary policy and include
those assets and liabilities that reflect monetary policy measures. In
addition, the daily results of monetary policy transactions of the
previous week (business volume and reference interest rates) will be
provided.
Inflation
Inflation is a rise in the general price level extending over several
periods. An inflationary process is accompanied by a loss of purchasing
power of money. Price changes for individual goods (commodities and
services) or categories of goods which reflect changed supply and demand
relations in functioning markets are, however, not to be equated with
inflation. Inflation is measured by means of a price index (consumer
price index). The inflation rate measures the percentage increase in the
price index. (deflation, disinflation).
Interest rate (nominal)
The interest rate is the return for making a sum of money available for
a certain period. It is owed by the debtor to the creditor. The interest
rate is expressed as a percentage of the sum made available (interest
rate) and usually refers to a time period of one year. The interest rate
evolves according to supply and demand in the money and capital markets.
Its level, moreover, is influenced by the duration for which the money
is made available and the financial standing (creditworthiness and
solvency) of the debtor (interest rate structure).
Interest rate (real)
An adjustment of the nominal interest rate (interest rate [nominal]) for
the loss of purchasing power due to inflation leads to the real interest
rate. It is thus calculated as the difference between the nominal
interest rate and the inflation rate. In other words, the real interest
rate signifies the yield on investments adjusted for inflation or the
borrowing costs adjusted for inflation respectively.
Interest rate structure
In the money and capital markets, investments with varying maturities
(terms) exhibit varying interest rates (interest rate). The relation -
in terms of time - between the individual interest rates is defined as
interest rate structure or term structure of interest rates. Very often
the interest rate structure is expressed as the difference between a
long-term interest rate (e.g. the interest rate on a federal government
bond) and a short-term interest rate (e.g. the three-month Eurofranc
rate). The interest rate structure is referred to as normal if the
difference is positive, i.e. if the long-term interest rate exceeds the
short-term rate. In the opposite case, the interest rate structure is
described as inverse. In the case of equal long- and short-term rates,
the interest rate structure is flat.
Interim notes
The first banknotes, which the National Bank issued in 1907, were
largely patterned after the notes of former issuing banks (cantonal
banks). During a transition period of three years, these so-called
interim notes continued to be in circulation alongside the older
banknotes. From 20 June 1910 onwards, only the banknotes issued by the
National Bank were legal tender. In September 1911, it issued its first
independently developed banknotes (All banknote series).
Internal value of money
Monetary value
International Monetary and Financial Committee, IMFC
The International Monetary and Financial Committee is one of the two
advisory bodies of the International Monetary Fund (IMF). It holds
half-yearly meetings. The Development Committee is the second advisory
body. It meets twice a year together with the World Bank and advises the
Bretton Woods institutions on issues relating to the transfer of real
resources to developing countries.
International Monetary Fund (IMF)
The IMF is one of the two Bretton Woods institutions. It was established
in 1945 to promote stable monetary conditions – and, by facilitating
balanced growth of international trade – enhance the prosperity of its
members. Today, practically all of the world's sovereign states are
members of the IMF. The main task of the IMF is the surveillance of the
economic policies of its member countries within the framework of the
article IV consultations. In addition, the IMF extends credits and loans
to countries with balance-of-payments problems. Within the framework of
the Poverty Reduction and Growth Facility (PRGF), the IMF supports
low-income countries in exceptional crises. In addition to obtaining
financing via quotas, the IMF can borrow funds under the terms of the
General Arrangements to Borrow (GAB) and the New Arrangements to Borrow
(NAB). The IMF also provides technical assistance.
International reserves
Net foreign holdings of the National Bank
Intraday credit
Credits with a maturity of less than a business day. Such credits are
granted in order to facilitate the smooth processing of payments in
payment systems. Intraday credits are usually provided interest-free by
central banks.
Investment Policy Guidelines
The Investment Policy Guidelines of the Swiss National Bank (SNB) detail
the transactions described in art. 9, para. 1 of the National Bank Act
which the SNB may enter into in order to perform its investment policy
tasks and define the scope of the SNB's investment policy. In addition
to investment policy principles and details on the investment
instruments, the Guidelines also lay down specifications for the
investment and risk control process.
Issue
Banknote series
L
Large-value or wholesale funds transfer system
A funds transfer system through which large-value and high-priority
funds transfers are made between participants in the system for their
own account or on behalf of their customers. Although, as a rule, no
minimum value is set for the payments they carry, the average size of
payments passed through such systems is usually relatively large.
Libor
The Libor (London Interbank Offered Rate) refers to the interest rate
for unsecured money market loans to prime banks. Each bank business day,
specific banks report to the British Bankers’ Association (BBA) the
interest rate at which they would be able borrow unsecured funds of a
reasonable market size on the London interbank market shortly prior to
11 a.m. The relevant top and bottom-quartile interest rates are
disregarded when fixing the Libor. An average is calculated on the basis
of the remaining interest rates, and the figure obtained in this manner
is fixed and published as the Libor for the day in question. Libor rates
are fixed in different currencies and with varying maturities.
Liquidity
Liquidity is defined as the ability to meet all liabilities that fall
due, at any time and without restrictions. Accordingly, a bank or group
of banks is referred to as illiquid if it does not hold sufficient
liquid assets to be able to meet all its short-term liabilities. A bank
can be solvent in spite of being illiquid: In this case, it does have
sufficient assets to cover all debts and is not over-indebted; however,
it might not be able to meet all short-term liabilities.
Lombard rate
Lombard loans are extended at the official Lombard rate. As from May
1989, this rate has been calculated on a daily basis by the National
Bank, and since December 1989 it has exceeded the market rate for call
money by two percentage points so as to prevent the banks from using the
Lombard loan as a permanent source of refinancing.
M
Minimum reserves
In order to facilitate the smooth functioning of the money market, the
banks shall keep minimum reserves. Minimum reserves shall consist of
Swiss franc denominated coins, banknotes and sight deposits which the
banks hold with the National Bank.
Monetary Assistance Act
The Federal Act on International Monetary Assistance has been in force
since the beginning of October 2004. It enables Switzerland to
participate in the provision of financial assistance to prevent or
remedy serious disruptions in the international monetary system
(systemic aid), as well as to participate in special funds of the
International Monetary Fund (IMF), especially the financing of loans to
low-income countries at concessional interest rates, and to grant loans
to countries with which Switzerland has especially close ties. The
Federal Council may commission the National Bank to finance loans for
systemic aid, with the Confederation guaranteeing repayment. It may also
mandate the National Bank – with its approval – to assume responsibility
for the participation in the special funds of the IMF, with the
repayment of the loan also guaranteed by the Confederation. Short-term
or medium-term loans granted to individual countries that cooperate
closely with Switzerland will be financed by the Confederation. The
Federal Decree on International Monetary Assistance provides a credit
ceiling of CHF 2.5 billion for the financing of guarantees and loans
within the context of bilateral and multilateral monetary relations.
Monetary base
The monetary base corresponds to the sum of notes in circulation and
giro account balances of domestic commercial banks at the National Bank.
Monetary policy
Monetary policy is the central bank's use of monetary policy instruments
to achieve economic policy goals. Monetary policy thus constitutes a
part of economic policy. The monetary policy of the Swiss National Bank
aims at creating the possibility for the economy to exploit its
production capacity without jeopardising price stability in the medium
term. Its instruments include notably open market operations (repo
transactions, foreign exchange swaps, the purchase and sale of foreign
exchange and securities) as well as Lombard business.
Monetary sovereignty
Switzerland's monetary sovereignty comprises the coinage prerogative
(swissmint) and the banknote monopoly. The monetary sovereignty entitles
its holder, the Swiss Confederation, to pass statutes on the banknote
and coinage system (i.e. determine the currency unit, designate the
authority responsible for issuing the money, determine the
denominations, etc.).
Monetary stability
The term monetary stability has two dimensions: in the domestic economy,
monetary stability is usually equated with price level stability and
implies a constant level of domestic purchasing power of money (monetary
value). In the external dimension, by contrast, monetary stability
implies the stability of the nominal exchange rate (monetary value).
Monetary value
Monetary value is the purchasing power of money and expresses the volume
of goods that can be bought for a monetary unit. A distinction may be
made between the internal and the external value of money. The internal
value corresponds to the reverse value of the price level. When the
price level rises, the volume of goods that can be purchased for a
monetary unit decreases and vice versa. Consequently, the price level
and the purchasing power of money always exhibit contrary development.
The external value of money is the amount of foreign currency that can
be bought for a domestic monetary unit. The external value corresponds
to the exchange rate in the indirect quotation.
Money market
The money market is the market for borrowing and investing short-term
funds. Short-term funds are mostly considered to be funds made available
for a period of up to one year. Aside from the central bank and
commercial banks, which mutually provide each other with base money,
public and private nonbanks also have recourse to the money market
(capital market).
Money market debt register claims
Money market debt register claims (MMDRCs) are a money market instrument
with which the Swiss Confederation and local public authorities raise
short-term funds. Money market debt register claims were first issued by
the Confederation in 1979 and have since become well-established in the
Swiss money market. As a rule, maturities range from three to twelve
months. Interest on MMDRCs is paid on a discount basis, i.e. the debt
register claims are issued below par and repaid at nominal value.
Money stock M0
The money stock M0 is the money supply of the central bank, also
referred to as the monetary base, or occasionally as the cash base.
Money stock M1
The money stock M1 comprises currency in circulation in the form of
Swiss francs (banknotes and coins) held by the public plus sight
deposits in Swiss francs held by the resident public at banks and the
post office as well as transaction deposits.
Money stock M2
The monetary aggregate M2 is defined as the sum of the money stock M1
and savings deposits. Excluded from savings deposits are pension fund
monies invested in schemes with restricted terms and tax benefits within
the framework of the mandatory occupational pension scheme (pillar 2)
and the voluntary, individual pension scheme (pillar 3).
Money stock M3
The money stock M3 comprises the money stock M2 plus time deposits.
N
Net foreign holdings of the National Bank (balance of payments)
The net foreign holdings of the National Bank form part of the balance
of payments. This item shows the changes in foreign assets and
liabilities of the National Bank. Foreign assets include gold holdings,
foreign exchange balances, the reserve position in the International
Monetary Fund and international payment instruments. Other than in the
financial account, the changes in the holdings are recorded in this
item, rather than the transactions. Changes not resulting from
transactions are offset in a separate item showing the valuation changes
on the Bank's holdings.
Net settlement system
A settlement system in which final settlement of transfer instructions
occurs on a net basis at one or more discrete, prespecified times during
the processing day. A participant's net position is computed based on
the sum of payments received minus payments effected.
Netting
An agreed offsetting of positions or obligations by counterparties or
system participants. The netting reduces a large number of individual
positions or obligations to a smaller number of positions or
obligations.
New Arrangements to Borrow (NAB)
The New Arrangements to Borrow (NAB) are parallel agreements to the
General Agreements to Borrow (GAB). Since 1997, together with the Group
of Ten, 15 other countries agreed to lend to the International Monetary
Fund (IMF) up to SDR 34 billion in order to supplement the IMF's general
quota resources. The arrangements under which the loans are extended are
similar to those for the GAB. The National Bank is a participating
institution in the NAB.
Nominal interest rate
Interest rate (nominal)
Notes in circulation
The sum total of all the banknotes issued by the SNB is known as notes
in circulation. These account for approximately 90% of the monetary
base. Notes in circulation represent a liability of the central bank
vis-à-vis the public and are thus shown on the liabilities side of the
central bank's balance sheet.
Note-issuing bank
Central bank
O
Open market operations
An open market operation is the purchase or sale of securities and other
claims in the money and capital markets by the central bank. The
National Bank conducts open market operations primarily for steering the
monetary base. Open market operations of practical significance for the
SNB are repo transactions, foreign exchange swaps and to a lesser extent
securities business.
P
Payment versus payment
A mechanism in a foreign exchange settlement system which ensures that a
final transfer of one currency occurs if, and only if, a final transfer
of the other currency takes place simultaneously.
Price level
The price level is the weighted average of various output prices in an
economy. The price level thus measures the price of a defined basket of
goods which is a cross-section of the goods produced or consumed in an
economy (commodities and services). A stable price level does not
necessarily imply stable unit prices: price rises for individual goods
may be compensated by price reductions for other goods so that overall
the price level remains constant. A rise in the price level implies a
decline in the purchasing power of money: on average, a monetary unit
will buy a smaller number of commodity units. Consequently, the price
level and monetary value always exhibit opposite development.
Poverty Reduction and Growth Facility (PRGF)
The PRGF is the facility of the International Monetary Fund (IMF) for
the low-income members. The PRGF is financed with bilateral
contributions and with the IMF's own funds. The National Bank finances
the Swiss contribution to the PRGF capital. The Confederation guarantees
the National Bank the timely repayment of the credits including interest
payments; it also finances the interest rate subsidies.
Private bankers
Private bankers operate primarily in the field of asset management.
Private bankers who do not actively seek deposits may waive the
statutory transfers to reserve funds, since the partners are jointly and
severally liable. In addition, they are not required to publish either
annual or interim financial statements.
Purchasing power of money
Monetary value
Purchasing power parity
Purchasing power parity is said to exist when the exchange rate is fixed
in such a way that, given certain price levels in any two countries, the
purchasing power of both the domestic and foreign currency is the same.
Purchasing power parity thus means nothing more than the "law of uniform
prices", which serves to explain the exchange rate.
Q
Quota
Each member country of the International Monetary Fund (IMF) holds a
capital subscription, the quota, expressed in Special Drawing Rights
(SDRs). In determining a member-country's quota, the IMF considers
various economic criteria of a country (GDP, official reserves, current
account receipts and payments, and their variability). Quotas are the
primary source of IMF resources. They also determine the maximum amount
of financing a country can normally obtain from the IMF. Furthermore,
the quota defines a member country's voting power in the IMF and
determines the allocation when new Special Drawing Rights are
distributed. The IMF must conduct a general review of quotas in
intervals of maximum five years and make any necessary changes.
R
Raiffeisen banks
The Raiffeisen banks are small regional banks operating as legally
autonomous entities. They pool local savings which they then lend to
borrowers within the same region. Organised as a cooperative, they are
supported and monitored by a service centre operated by a central
association, the Schweizer Verband der Raiffeisenbanken. This
association guarantees all of its member banks' debts, while these banks
in turn are liable for the association's debts.
Real interest rate
Interest rate (real)
Real-time gross settlement system (RTGS system)
A real-time gross settlement system settles funds or securities
transfers individually on an order-by-order basis (without netting) and
continuously (in real time) throughout the processing day. This
settlement method achieves intraday finality (finality).
Recall of banknotes
In accordance with the law, the National Bank may recall the current
banknote series as per a certain date in order to replace it with a new
banknote series (All banknote series of the SNB).
Recalled banknotes
As of the date of recall, the recalled banknotes cease to be legal
tender. However, the National Bank is obliged to exchange the recalled
banknotes at their nominal value for another 20 years (All banknote
series of the SNB).
Regional banks and savings banks
Regional banks and savings banks conduct the bulk of their business in
the savings and mortgages field. Their operations are thus very similar
to those of the smaller cantonal banks, though as a rule their
geographical scope is smaller. Most of the regional banks are affiliated
to the Association of Swiss Regional Banks (RBA-Holding), an umbrella
organisation that provides services on their behalf. However, the banks
affiliated to this holding company continue to act as independent
entities.
Repo transactions
A repo (repurchase agreement) is a securities repurchase agreement. In a
repo the cash taker sells securities to the cash provider with the
simultaneous agreement to repurchase securities of the same type and
quantity at a later date. The interest rate applied in a repo
transaction is called a repo rate. The repo rate is owed for the amount
loaned and is generally lower than the interest rate for unsecured money
market loans.
The National Bank uses this instrument for the steering of liquidity. It
is in principle willing, until further notice, to purchase any
securities from the «CHF GC Basket», the «Euro GC Basket» and the
«German Jumbo Pfandbriefe GC Basket».
Reserve position
The reserve position in the International Monetary Fund (IMF)
corresponds to the portion of the quota paid in. It may be likened to a
currency reserve position which may be used as such by the National Bank
at any time.
Reserve series
Reserve series are banknote series that have never been put into
circulation. In Switzerland, the 4th and 7th series are considered
reserve series. These series would have been used in the event of a
large number of counterfeits circulating among the banknotes in
circulation. In this case, the National would have replaced the
counterfeit denomination or series.
Retail funds transfer system
A funds transfer system which handles a large volume of payments of
relatively low value in such forms as credit transfers, direct debits
(direct debiting), ATM and EFTPOS transactions.
S
Sacrifice ratio
The sacrifice ratio is the relation between production or income losses
suffered during a period of disinflation and the reduction in the
inflation rate achieved. It indicates what percentage of the annual
gross domestic product must be "sacrificed" in order to reduce inflation
by one percentage point. The sacrifice ratio therefore serves as the
yardstick for the cost of disinflation.
Savings banks
Regional banks and savings banks
SECB Swiss Euro Clearing Bank
SECB is a Frankfurt-based bank set up by Swiss banks to facilitate euro
payment transactions within Switzerland, as well as between Switzerland
and the EU. SECB, which is subject to German banking supervision,
maintains the accounts through which euroSIC performs settlement,
monitors the settlement process and manages the provision of liquidity.
euroSIC is operated by SIX Interbank Clearing Ltd. SECB clears
SEPA-eligible payments and has access to European large-value and bulk
payment systems (TARGET2, STEP1 and STEP2).
Security features of banknotes
Security features are designed to prevent counterfeits as best as
possible. The features are defined in the security concept. The current
Swiss banknotes incorporate the following six features that the general
public can recognise and verify easily: the moving number, the magic
number, the coloured number, the chameleon number, the glittering number
and the perforated number. In addition, the banknotes have other
security features, such as the security thread.
Security suitcase
Security suitcases are used to transport banknotes and serve as a
precautionary measure against theft. If security suitcases are opened
improperly, the notes will discolour and thus become unusable. The notes
are then taken to the National Bank's Cash Division in Berne, where
their authenticity is verified (The sorting and destruction). Banknotes
recognised as genuine are subsequently replaced.
SEPA (Single Euro Payments Area)
A project to harmonise bulk payments in euros; the aim is that payments
within SEPA – whose members are the 27 EU countries plus Norway,
Iceland, Liechtenstein and Switzerland – should be carried out at the
same terms and conditions as those previously applied to domestic
payments. SEPA uses three new, standardised payment instruments (SEPA
credit transfers, SEPA direct debits and SEPA card payments), which form
the basis for the fully automated processing of euro payments.
Settlement
An act that discharges obligations in respect of funds or securities
transfers between two or more parties.
SIC (Swiss Interbank Clearing)
SIC (Swiss Interbank Clearing) is an electronic interbank payment
system, which has been operated since 1987 on behalf of the Swiss
National Bank by SIX Interbank Clearing Ltd, a subsidiary of SIX Group
Ltd and PostFinance. It is a real-time gross settlement system (RTGS)
with a queuing mechanism. Payments are processed individually and
sequentially – i.e. on a gross basis – and settled through the
participants’ sight deposit accounts at the SNB. More than 340
participants settle their large-value payments, as well as some of their
low-value payments, through SIC.
SIX Group
SIX Group provides infrastructure services for domestic and
international participants in the Swiss financial marketplace. The
company’s activities span securities trading, securities services,
financial information, and payment and settlement. SIX Group resulted
from the merger of SWX Group, SIS Group and Telekurs Group at the
beginning of 2008 and, as an internationally active infrastructure
company, represents a key element in the Swiss financial marketplace.
Sight deposits
Sight deposits are non-interest-bearing deposits of domestic commercial
banks at the National Bank. The commercial banks' demand for sight
deposits emanates from the statutory liquidity regulations and from the
need for working balances in interbank cashless payment transactions
SIC). The National Bank controls the supply of sight deposits by means
of its monetary policy instruments, with which it also steers the
liquidity of the banking system. The supply of and demand for sight
deposits is balanced out in the overnight market.
SNB Bills
From its set of regular monetary policy instruments, the SNB may issue
its own debt certificates in Swiss francs and foreign currencies. The
debt certificates in Swiss francs (SNB Bills) are used to absorb
liquidity, thereby enabling the SNB to steer sight deposits more
flexibly. The debt certificates in US dollars (SNB USD Bills) are used
to increase foreign currency reserves and to finance the SNB’s loan to
the SNB StabFund, the National Bank’s special purpose vehicle.
Solvency
A bank or group of banks is solvent if it meets the capital adequacy
regulations currently effective. In particular, this condition implies
that it has sufficient assets to cover its liabilities. Only if a bank
or group of banks is solvent, i.e. holds sufficient regulatory capital,
can the Swiss National Bank (SNB) provide extraordinary liquidity
assistance. To assess solvency, the SNB obtains an opinion from the
Swiss Financial Market Supervisory Authority (FINMA).
Special Drawing Right (SDR)
The Special Drawing Right (SDR) is the unit of account and means of
payment for transactions with the International Monetary Fund (IMF). A
currency basket whose composition is reviewed every five years
determines the value of SDRs. The basket currencies include the US
dollar, the Euro, the Japanese yen and the pound sterling (from the
beginning of 2001).
Stability of the financial system
The characteristics of a stable financial system are components that
fulfil their function and prove resistant to shocks.
Stagflation
Stagflation is the term used to describe an economic situation in which
overall production sinks while at the same time the price level rises.
The term stagflation is a combination of (economic) stagnation and
inflation.
Stockpiling of banknotes
Banknotes serve not only as a means of payment but also as a store of
value. Banknotes that have been stockpiled – sometimes in very large
sums – have been temporarily or permanently withdrawn from the money
circuit and are thus tied up («piggy bank») (Banknote circulation).
Sufficient collateral
The Swiss National Bank (SNB) only provides extraordinary liquidity
assistance if the credit is covered by sufficient collateral at all
times. The National Bank determines what collateral is sufficient. In
particular, less liquid bank assets with high credit ratings, for
instance mortgage claims, can serve as collateral.
S.W.I.F.T. Society for Worldwide Interbank Financial Telecommunication
A cooperative organisation created and owned by banks that operates a
network which facilitates the exchange of payment and other financial
messages between financial institutions (including broker-dealers and
securities companies) throughout the world.
Swiss Financial Market Supervisory Authority (FINMA)
In Switzerland, unlike many other countries, an independent executive
and supervisory authority of the Federal government, namely the FINMA
(formerly Federal Banking Commission FBC), and not the central bank, is
responsible for supervising the banks. The role of the FINMA is (1) to
guarantee the protection of creditors and depositors, (2) to ensure the
proper functioning of the banking and securities markets, (3) to assess
compliance with the legal requirements and (4) to issue the necessary
directives to implement the legislation. Thus the FINMA is responsible
only for compliance with the operating framework; it does not intervene
in the banks’ business operations.
swissmint
The 1848 Federal Constitution transferred the right to mint coins from
the cantons to the Confederation. In 1855, the Confederation took over
the «Berner Münzstätte» (the former mint of the Canton of Berne), which
was renamed the Federal Mint and became responsible for supplying the
country with the necessary coins. Since 1 January 1998, the Mint has
formed an independent unit of the Federal Finance Administration. At the
same time, it was given a new name: swissmint (http://www.swissmint.ch).
System stability
Stability of the financial system
Systemic crisis
A systemic crisis is a systemic event which affects either a few major
institutions or a large number of institutions, resulting in impairment
of the general functioning of the financial system (or major parts
thereof).
Systemic event
A systemic event, in the strict sense of the term, is when problems at a
financial institution lead to serious problems at other financial
institutions or on a market. In the broader sense, the term «systemic
event» also applies to events affecting several financial institutions
simultaneously, e.g. a stock market crash in which all banks with an
equity exposure suffer losses.
Systemic importance
A bank or group of banks is of systemic importance if its inability to
pay would seriously impair the functioning of the Swiss financial system
or major parts of it, and have a negative impact on the real economy.
Systemic risk
Systemic risk is the probability of a systemic event occurring.
T
TARGET (Trans-European Automated Real-time Gross settlement Express
Transfer System)
From 1999 to 2007, TARGET provided the link between the national payment
systems of the EU; it was replaced by TARGET 2.
TARGET 2 (Trans-European Automated Real-time Gross settlement Express
Transfer System)
On 19 November 2007, the EU-wide large-value payment system TARGET was
replaced by the new TARGET 2 shared platform. As a result, 16 national
RTGS systems, which had previously been linked via TARGET, ceased to
operate. TARGET 2 facilitates the implementation of the European Central
Bank’s monetary policy, and represents a further step towards a fully
harmonised and consolidated payments area as part of European Monetary
Union (EMU).
Telekurs Group
A service organisation owned by Swiss banks, its main focus is on
financial information, electronic payment media and payment systems
(SIC). In 2008, Telekurs Group merged with SWX Group and SIS Group to
form SIX Group Ltd.
Transfers (balance of payments)
Transfers in the balance of payments designate counterentries for the
provision of economic values (goods, services, and financial assets) not
offset by a corresponding return. A distinction is made between current
transfers in the current account and capital transfers, which constitute
a separate category in the balance of payments.
Two-way arrangement
The National Bank undertakes towards the International Monetary Fund
(IMF) to purchase Special Drawing Rights (SDRs) against foreign
currencies up to an agreed maximum (currently SDR 400 million) or to
return the acquired Special Drawing Rights in exchange for currency. The
Special Drawing Rights purchased in this way are shown in the National
Bank's balance sheet as interest-yielding sight balances in the IMF.
U
Unemployment, natural rate of
The natural rate of unemployment designates the level of unemployment
resulting in the long-term overall economic equilibrium and which is
compatible with a constant inflation rate.
Unemployment rate
The number of unemployed persons measured by the number of employed
persons.
W
World Bank (International Bank for Reconstruction and Development, IBRD)
The World Bank is one of the two Bretton Woods institutions. Founded in
1945, it is the main agency for channelling development aid funds. It
borrows funds in the international money and capital markets and is the
main associated institution of the World Bank Group.
World Bank Group
The World Bank Group's central mission is to promote economic and social
progress in poorer countries. Most of the world's sovereign states are
members of the World Bank Group. The World Bank Group consists of the
World Bank (International Bank for Reconstruction and Development), the
International Development Agency (IDA), the International Finance
Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA)
and the International Centre for Settlement of Investment Disputes
(ICSID).
Worthless banknotes
After the statutory conversion period of 20 years, recalled banknotes
become worthless and can no longer be exchanged. The countervalue of the
notes that have not been submitted for exchange within this period is
transferred to a charitable fund. Worthless banknotes may still have a
collector's a value, however. The price depends on supply and demand as
well as on the condition of the banknotes. Unlike numismaticians,
antique shops or banks, the SNB does not deal in worthless banknotes
(All banknote series of the SNB).
Source: http://www.snb.ch/en/system/glossary
Financial ACRONYMS
Glossary from Swiss National
Bank
Offshore Savings Glossary
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