Seven years ago, a Frank bomb exploded. Today, its next chapter is being written

This news literally electrified the markets seven years ago. Few people expected that four years after the Swiss central bank established the so-called currency ceiling on the franc, central bankers will suddenly find that the protective umbrella is no longer needed.

Recall that After the financial crisis, the Helvetians watched with concern as their currency strengthened with each increase in risk aversion in the market. And this one was not lacking. Frank because, right next to the Japanese yen is included in the so-called. safe havens where fearful investors hid.

The crash on the Swiss franc

Therefore, the bank decided to keep the pegged franc to euro exchange rate not lower than 1.2, and it will overwhelm each fall below this level with additional currency printing. However, the currency was very strong The Swiss are not entirely on hand due to the declining competitiveness of exportsalthough back then these were more political slogans than a real threat. The bank argued that a fixed exchange rate is a necessity, because it is afraid of deflation, i.e. a drop in prices (then they wanted to stimulate prices by more expensive imports due to the weaker currency; the Swiss would pay more than 1 for the imported goods at the exchange rate of 1.5 francs per euro, 2).

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On January 15, the local central bank suddenly concluded that there was no point in defending the franc. So he removed the currency ceiling and lowered the main interest rate to -0.75 percent, as a result, the posts of investors around the world went crazy. Panic started and the snowball effect started.

At its peak, the exchange rate of the Swiss franc to the Polish zloty jumped by half to the then record value of 5.14, although in the morning you had to pay PLN 3.54 for 1 franc. Later during the day the rate stabilized at the level of PLN 4.15-4.20, which is still significantly higher than anyone in our country could have expected a few days earlier. The zloty was going down, the franc was going up. People who had loans in this currency could not like this.

See also: The Frankivskis are sure of court winners. The President of the Polish Bank Association draws attention to the nuance in the CJEU judgment

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“Banksters won”

And I didn’t like it. Although the term “Swiss franc”, i.e. a person with a Swiss franc mortgage, was coined much earlier, after this event it took on a new shine.

Mass counting numbers started in the media. “If someone took a loan worth PLN 300 thousand, in mid-2008, the monthly installment, at a franc exchange rate of PLN 3.6, was about PLN 1760 per month. Strengthening the franc to PLN 4.2 means an increase in the monthly installment to PLN 2070 “- then argued one of the analysts.

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It was getting louder and louder about the frankers, and their problems were then on the wallpaper of many politicians. Among other things, the not very well-known presidential candidate Andrzej Duda, who vowed to use all possible means to help them. What is left of it with time is another matter. Massive protests began, which were interrupted by the pandemic. On the banners of the franc borrowers, we could read the words: “Banksters won” or “Toxic sector, toxic profit”.

Frankivskis now

Currently, the Swiss franc remains at a level even higher than immediately after the removal of the “currency ceiling”, because we pay PLN 4.35 for one Helsinki currency. As Piotr Sobolewski, an analyst at Polityka Insight writes, a lot has changed since 2015.

“The CHF loan portfolio shrank by 45 percent, customers filed approx. 80 thousand lawsuits, and banks established at least PLN 19 billion in provisions” – he sums up.

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A new war – this time for SARON

Currently, history is writing a new chapter in the history of franchisees. A new chapter of their dispute to be exact, because the situation is still tense. This time the watchword is SARON. What is it about? Pursuant to the implementing regulation of the European Commission, from January 1, 2022, the SARON compound rate will replace the CHF LIBOR rate in every contract and financial instrument in the EU. These rates are used to calculate the interest rate on your loan.

The EC regulation is the result of the decision of the British Financial Conduct Authority (FCA) announced in March 2021 to completely stop developing the benchmarks: CHF LIBOR (all dates) at the end of 2021.

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The Franks know their knowledge

However, some franchisees are of a different opinion. In November 2021, a Polish franchise woman submitted a complaint to the Court of Justice of the EU against this decision, stating that the regulation constitutes an unprecedented interference in the binding contracts, especially as the discussions on the statutory solution to the problem of Swiss franc loans have so far been dominated by opinions that contracts for such loans cannot be modified by the act.

“The conversion of LIBOR to SARON will be another element contested by customers in their Swiss franc contracts. Of course, banks will say that SARON is replacing LIBOR, and plaintiffs will challenge it. In the past, when the British association that published LIBOR rates changed, there were agreements with this indicator and the courts have declared these agreements invalid. We have judgments stating that the lack of the indicator indicated in the agreement makes this agreement invalid “- emphasized Szcześniak.

According to the president of SBB, while working on the laws, the banks and their representatives maintained that contracts could only be changed by a settlement or a court judgment, and that no legal act could change the content of the contracts.

“We will gain certainty as to the LIBOR agreements concluded before 2018 when the CJEU speaks on this subject,” he added.

In Szcześniak’s opinion, there is no doubt that after January 1, 2022, Swiss franc borrowers will challenge the conversion of the index also in Polish courts.

The vice-president of the Polish Bank Association, Tadeusz Białek, is of a different opinion. “Undermining the change of the indicator is a misunderstanding. The European Commission, using its competences, has the right to issue an appropriate regulation, thanks to which one indicator will automatically replace the other in all franc contracts without annexing. The date of signing the contract is irrelevant here. This is clearly indicated by both the European Commission and the PFSA. I do not know where these interpretations come from, these are marketing ideas of Swiss franc law offices detached from reality “- assessed Białek.

“It is worth adding that the European Commission also swapped another EONIA indicator at the same time. The idea is that this regulation automatically replaces any reference to the indicator. And the only situation where there may be any other solutions are the so-called Fallback clauses included in some contracts when the bank previously provided for LIBOR to be replaced by some other indicator“- emphasized the representative of the Polish Banks Association

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About Eric Wilson

The variety offered by video games never ceases to amaze him. He loves OutRun's drifting as well as the contemplative walks of Dear Esther. Immersing himself in other worlds is an incomparable feeling for him: he understood it by playing for the first time in Shenmue.

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