“Should we see a continuation of the net inflow of francs in cash clearing accounts of our banking customers, we might have to take corrective action, within the next few days, by means of a temporary excess balance fee,” the bank said.
After record demand for the franc in recent weeks, UBS said it was closely monitoring the development of franc cash balances maintained in the current accounts of its franc clearing customers.
“We encourage you to keep your balances in your franc cash clearing account as low as possible,” it said in the note sent to its client banks.
The UBS news helped the euro climb more than 2 percent against the franc to a one-month high. The dollar also jumped against the franc in volatile trading after Federal Reserve Chairman Ben Bernanke said the US central bank can do more to boost growth but offered no details.
“This is a way to make investors have to pay for the privilege of owning the currency,” said Cheviot Asset Management fund manager David Miller in London.
The move came amid speculation Switzerland might consider imposing negative interest rates on Swiss franc deposits as it fights a surge in the franc to record highs against the dollar and euro earlier this month that is hitting exports and growth.
“Everybody wants to put money with the Swiss banks. It’s the least scary place to be,” said Ion-Marc Valahu, a fund manager at Geneva-based investment company ClairInvest, adding the move was similar to one by Bank of New York Mellon Corp. to charge some of its big customers a fee for large deposits.
Cash clearing accounts are used by banks to fund their trading activities in other currencies. Managing unusually large balances could push up UBS’s administrative and regulatory costs.
The Swiss National Bank denied earlier on Friday that it had sent letters to Swiss banks asking them to impose charges on franc deposits in a new bid to weaken the currency.
A spokesman for Credit Suisse declined to comment on whether Switzerland’s second biggest bank might consider the same move as UBS.
The franc has fallen steeply in the last two weeks after the SNB slashed interest rates to zero and flooded the market with francs by rapidly expanding banks’ sight deposits.
National Australia Bank currency strategist Gavin Friend said the policy was cutting Swiss banks’ interest margins.
“The implication to commercial banks in Switzerland has been if you want to provide liquidity to foreign banks in francs, you need to charge them for it as you’re getting nothing from us,” he said.
The SNB has threatened more action to counter what it says is a “massively overvalued” franc, prompting speculation it might be prepared to resume currency interventions or impose negative interest rates on deposits as it did in the 1970s.
It could also start charging Swiss banks for clearing foreign banks’ funds to try to reduce the appeal of the franc for players willing to accept the opportunity cost of holding their assets in cash.
A Swiss debt auction this week showed that investors are so keen on Swiss assets that they are now willing to pay for the privilege of holding short-term federal debt, with yields turning negative for the first time ever.
