SARON mort­gage

Credit Suisse, like other fin­an­cial in­sti­tu­tions, is pre­par­ing for a trans­ition away from In­ter­b­ank Offered Rates (IBORs), for ex­ample LIBOR, to Al­tern­at­ive Ref­er­ence Rates (ARRs).

The Lon­don In­ter­b­ank Offered Rate (LIBOR) serves as a widely ac­cep­ted bench­mark in­terest rate that rep­res­ents the cost of short-​term, un­se­cured, whole­sale bor­row­ing among banks. LIBOR is cal­cu­lated and pub­lished based on sub­mis­sions by a group of banks. LIBOR rates are pub­lished daily for a vari­ety of terms (1, 3, 6 or 12 months) and are used for mil­lions of con­tracts and in­stru­ments across the en­tire fin­an­cial sec­tor.

In 2017, the Fin­an­cial Con­duct Au­thor­ity, which reg­u­lates LIBOR, an­nounced that after 2021, banks will no longer be ob­liged to make LIBOR sub­mis­sions. This de­cision was made in part be­cause the mar­ket un­der­ly­ing LIBOR has not been act­ive enough to sup­port the bench­mark sus­tain­ably into the fu­ture. This triggered what is now widely known as the IBOR trans­ition, where ARRs have been re­com­men­ded for vari­ous IBORs in­clud­ing Swiss Franc LIBOR.

A na­tional work­ing group sup­por­ted by the Swiss Na­tional Bank (SNB) iden­ti­fied and re­com­men­ded that the SARON (Swiss Av­er­age Rate Overnight) be the ref­er­ence in­terest rate and the re­place­ment for the Swiss franc LIBOR. The re­com­mend­a­tion from the na­tional work­ing group is for banks to re­place their products based on the Swiss franc LIBOR with ones based on SARON.

SARON was de­veloped by the stock ex­change op­er­ator SIX in con­junc­tion with the SNB in 2009 and has been ad­min­istered by SIX since that time. It rep­res­ents the overnight in­terest rate on the Swiss se­cured money mar­ket. SARON is cal­cu­lated on the basis of bind­ing quotes and volume-​weighted mar­ket trans­ac­tions. Ac­cord­ing to SIX, the mar­kets on which SARON is based are li­quid, highly reg­u­lated, and of high in­teg­rity.