and a large balance sheet : first experiences | thomas moser | © swiss national bank longer - term outlook for monetary policy implementation currently, two approaches to the longer - term implementation of monetary policy are being discussed internationally floor system corridor system supply % % central bank lending rate supply central bank lending rate demand market rate market rate central bank deposit rate demand structural demand reserves structural demand 09. 11. 2023 implementing monetary policy with positive interest rates and a large balance sheet : first experiences | thomas moser | © swiss national bank reserves several important questions must be answered before central banks potentially return to implementing monetary policy in a corridor system how precisely can money market interest rates be controlled? how will trading in the interbank money market be affected? how important to banks are reserves as high - quality liquid assets? how will banks ’ ability to make payments be affected? 09. 11. 2023 implementing monetary policy with positive interest rates and a large balance sheet : first experiences | thomas moser | © swiss national bank thank you for your attention © swiss national bank

conducting asset purchases. at that time, the snb repeatedly faced strong upward pressure on the swiss franc. to alleviate this pressure and ensure appropriate monetary conditions, the snb bought foreign exchange against swiss francs. these purchases inevitably increased the supply of reserves. as a result, a structural liquidity surplus has developed, as the supply of reserves significantly exceeds the commercial banks ’ structural demand for reserves. 7 in an environment with a structural liquidity surplus, paying interest on reserves is the only practical instrument for achieving positive money market interest rates. this is because, for banks, the main alternative to lending reserves to other banks in the money market is to hold these reserves with the central bank. the remuneration that banks can earn on holding their reserves with the central bank therefore becomes the relevant reference point for money market interest rates, and by remunerating banks ’ reserves, central banks can steer money market interest rates towards the policy rate. in the reserve tiering approach chosen by the snb, not all reserves held by commercial banks are remunerated at the snb policy rate ; this rate is only applied up to bank - specific thresholds. reserves in excess of these thresholds are remunerated at a lower interest rate. steering money market interest rates without remunerating reserves would have required the restoration of a structural liquidity deficit and thus a very large reduction in reserves. for the snb, this would have required a very large sale of foreign exchange reserves or similarly sized reserve - absorbing omos. it would have been unfeasible to accomplish this in a short period, and we would have been unable to steer money market interest rates effectively for some time. we therefore decided on a two - pronged approach, namely to deploy reserve tiering combined with reserve absorption in order to control short - term interest rates and maintain an adequate volume of interbank money market trading. for reserve absorption, we enter into reserve - absorbing repo transactions and issue snb bills. first experiences with new monetary policy implementation approach how has our new approach fared so far? the short answer is ‘ very well ’. it has allowed us to implement monetary policy effectively both in normal times and in times of financial market stress. let me elaborate on this. structural demand originates from regulatory requirements, payment obligations or precautionary liquidity buffers. besides the minimum reserve requirement, liquidity regulations that can influence banks ’ structural demand for reserves include the liquidity coverage ratio and the net stable