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Swiss banks are paying higher liquidity costs two years after the Credit Suisse collapse, reshaping funding markets and driving customers toward smaller lenders.

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A Financial System Still Adjusting

Switzerland’s banking landscape is still absorbing the shockwaves from Credit Suisse’s dramatic collapse, and the consequences are showing up in the cost of money. According to the Swiss National Bank (SNB), lenders today must pay significantly more to secure liquidity than they did just two years ago, a shift reshaping how banks fund themselves and issue loans.

The Legacy of a Crisis

The downfall of Credit Suisse in March 2023 and its emergency takeover by rival UBS represented one of the most consequential moments in modern Swiss finance. Although the merger stabilized markets at the time, it also triggered major behavioral shifts among customers and investors.

Petra Tschudin, a governing board member at the SNB, explained during a recent event in Geneva that these structural after-effects continue to influence banks’ funding dynamics across the country.

Funding Costs Climb Despite Recent Easing

Tschudin noted that between mid-2023 and the end of 2024, Swiss banks experienced a marked rise in their funding expenses, whether issuing bonds or borrowing in the money market. While those costs have eased slightly in recent weeks, she emphasized that they remain noticeably elevated compared to pre-merger levels.

These higher costs, she added, are not merely a financial inconvenience. They can directly affect how banks price loans and assess credit conditions for households and businesses.

One major factor behind the increase is the shifting pattern of customer relationships following the UBS–Credit Suisse merger. With one of Switzerland’s two global banks effectively disappearing, a large number of clients began diversifying their banking relationships to avoid relying on a single institution. This drove many toward domestically focused banks, institutions that typically operate with smaller investor bases and rely more heavily on domestic capital markets.

A Narrower Investor Base, Higher Costs

Tschudin explained that unlike the former Credit Suisse, many Swiss regional banks maintain little or no presence abroad. This limits their ability to tap international funding channels and forces them to compete more aggressively within Switzerland for liquidity.

She noted that as customers moved to these smaller banks, sometimes because UBS no longer offered the same conditions Credit Suisse once provided, demand for Swiss franc liquidity intensified. “The combination of narrowing investor pools and rising domestic funding needs has placed upward pressure on the cost of securing capital,” she said in her remarks.

This dynamic, she added, has amplified competition among lenders for stable funding sources, pushing up liquidity premiums across the board.

Global Forces at Play

The SNB highlighted several broader financial factors contributing to the cost increases. Among them:

• Rising government bond yields: As central banks unwind years of bond purchases, yields have climbed, influencing funding benchmarks throughout the system.

• A tighter liquidity environment: Global financial markets have become more selective, making short-term borrowing costlier for many institutions.

Together, these trends have widened swap spreads, one of the SNB’s key indicators of bank funding costs, over the past several quarters.

Higher Costs, But Credit Still Flowing

Despite the uptick in funding costs, the SNB says Switzerland’s credit pipeline remains healthy. Loan growth has continued, suggesting banks are still able to extend financing even as their own expenses rise.

Tschudin stressed that this resilience is a sign that monetary policy is functioning as intended. Businesses and households are still accessing credit, even if the mechanics behind the scenes have become more expensive for lenders.

Still, the environment remains sensitive. If elevated funding costs persist, banks may eventually face pressure to adjust rates or tighten lending conditions, steps that could ripple into the broader Swiss economy.

A Cautious but Stable Outlook

Switzerland’s banking system, long recognized for its stability, is navigating a new era shaped by the collapse of one of its most storied institutions. Liquidity is more expensive, competition for funding is more intense, and the country’s smaller banks are carrying a greater share of customer demand.

Yet the SNB’s message is cautiously reassuring: while the system is adjusting, it remains robust. Credit continues to flow, and monetary policy tools are still effective. The question for the months ahead is whether funding costs will settle back toward historical norms or become the new baseline for Swiss banking.

 

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