"The Stabfund - which has started to take on many of UBS's troubled assets and will continue to do so up to the $60 billion level limit - needs to be financed. To do so, the SNB is using one of the most liquid instruments (the US dollar) to have a broad base, relatively good conditions and to be able to regularly deliver this kind of financing," explains Alexander Kockerbeck, Frankfurt-based vice-president and senior credit officer at Moody's Investors Services.
"Also, UBS is short US dollars as the troubled assets that have been taken off its balance sheet were in US dollars. This is part of the reason for issuing SNB bills in US dollars," he continues.
The Stabfund was set up last October as a special purpose vehicle to absorb as much as $60 billion of toxic assets clogging Swiss banking giant UBS's balance sheet. The assets would be bought at their September 30 value, funded by $6 billion of equity capital from UBS and a loan of up to $54 billion from the SNB.
Moody's recently reaffirmed Switzerland's Aaa rating, believing the government took "calculated risks with the banking system" and displayed "a strong crisis management capacity".
"The Swiss government jumped in to prevent UBS getting isolated, or the potentially worse scenario of UBS collapsing. By taking the problematic assets away, our bank analysts believe the SNB has substantially improved the situation for UBS. Swiss banks are well capitalised," observes Kockerbeck.