According to Reuters, Swiss National Bank governing board member Petra Tschudin revealed that Swiss banks’ funding costs increased significantly between mid-2023 and end-2024 for both bonds and money market instruments. The state-engineered UBS takeover of Credit Suisse in March 2023 is identified as a key factor driving these higher costs. Customers who previously used both banks are now seeking additional banking relationships to reduce reliance on single institutions. This shift has pushed more business toward domestically focused banks that have narrower investor bases and less international borrowing access. While funding costs have declined somewhat recently, they remain elevated compared to two years ago, potentially affecting loan pricing and availability. Tschudin noted that despite these challenges, credit growth in Switzerland remains robust and monetary policy remains effective.
The customer exodus effect
Here’s what’s really interesting about this situation. When Credit Suisse collapsed and got absorbed by UBS, it wasn’t just about one bank disappearing – it created a fundamental shift in how customers think about risk. Basically, people who had spread their business between both giants suddenly found themselves with all their eggs in one basket. And nobody likes that feeling, especially when that basket just swallowed your other basket.
So what happened? A classic diversification play. Customers started looking for additional banking relationships, and many turned to smaller domestic banks. But here’s the catch – these smaller players don’t have the same international reach or broad investor base that the big guys enjoyed. They’re competing for liquidity in a smaller pond, which naturally drives up prices for everyone.
Why costs stay high
Think about it from the banks’ perspective. When you’re a domestically focused institution without international presence, your funding options are limited. You can’t just tap global markets as easily. So when suddenly more customers come knocking, you need to secure more capital domestically. And when multiple banks are all chasing the same pool of money? Well, basic economics tells us what happens next.
Tschudin mentioned that UBS not offering the same conditions as Credit Suisse might have accelerated this shift. That’s a subtle but important point. It’s not just about risk diversification – it’s also about service quality and terms. When the remaining giant doesn’t meet expectations, customers vote with their feet.
Beyond the banking drama
It’s worth noting that the UBS-Credit Suisse situation isn’t the only factor at play. The SNB also pointed to rising government bond yields and a generally more challenging liquidity environment. Central banks buying less government debt has ripple effects throughout the financial system.
But here’s the silver lining: despite these headwinds, credit growth in Switzerland remains strong. That suggests the system is still functioning, just at a higher cost. The question is how long these elevated funding costs will persist and whether they’ll eventually trickle down to affect the real economy through tighter credit conditions.
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The path forward
So where does this leave Swiss banking? The SNB seems cautiously optimistic, noting that monetary policy remains effective despite the challenges. But the funding cost issue isn’t going away anytime soon. Banks will need to adapt to this new normal where customers are more cautious about concentration risk and domestic funding markets face increased pressure.
The real test will be whether this shift toward smaller banks becomes permanent or if customers eventually consolidate their relationships again. For now, it seems the Swiss financial landscape has been permanently altered by the Credit Suisse collapse – and everyone’s paying the price, literally.
