Historically, nominal interest rates have always been positive. However, in the aftermath of the financial crises in 2007/2008, interest rates have decreased substantially. At some point, against all expectations, interest rates have crossed the line into negative territory. The venture, first implemented by the European Central Bank (ECB) in large scales, quickly affected other major economies, including Switzerland. Generally speaking, countries’ primary motivation for implementing such an expansionary monetary policy is to strengthen inflation and to boost economic growth.

The paper will systematically analyse the impacts of negative interest rates on Swiss retail banks based on available data. A thorough literature review provides the relevant context. Further information is obtained through expert reports, federal and bank institute publications, government statistics, and websites containing specialist knowledge in banking and macroeconomic content. The three scenarios are based on data provided by the SNB. The analysis focuses on mortgage and deposit banking. Finally, internal knowledge and the competitive environment of banks are analysed in order to propose a meaningful strategy to deal with the new challenges.

The primary reason why the SNB engages in the negative interest rates policy (NIRP) is to prevent the Swiss franc from an unwanted appreciation against the Euro. What has been introduced as a temporary measure to support the Swiss export industry, has become some sort of default situation over the years, as other central banks seem to hold firm to NIRP. Overall, it remains debatable if negative interest rates still serve as a useful instrument, as its effects on the macroeconomy are not clear. The effects of negative interest also strongly influence Swiss banks, as their interest margins keep decreasing as long as rates remain low. Especially Swiss retail banks are affected, as their core business stems from interest operations of granting credits and offering deposits for customers. Consequently, retail banks are more influenced by NIR than larger banks with a more diversified income stream. With the scenario analysis included in the paper, the consquences of interest rate adjustments by the SNB are evaluated. The strategy suggestion section proposes three different methods to stay competitive when being confronted with NIR. According to a criteria evaluation in a decision-matrix, the “Swiss Corporate Ecosystem” is the most promising option due to the high chance of an increase in customer satisfaction and loyalty towards NAB.