UBS to charge banks for Swiss franc deposits from December 21

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December 11, 2012 11:14 PM EST

UBS will charge other banks an additional, undisclosed penalty for holding Swiss franc deposits from next Friday in a drift toward effectively negative interest rates by Switzerland's major banks that has weakened the currency.

The Swiss-based bank first said in August 2011 it could penalise third-party bank clients for holding francs, while last week Credit Suisse said it is preparing to levy negative credit charges on bank clients' franc accounts.

The move by Credit Suisse helped push the franc to a 10-week low last week and the UBS action also weighed on the Swissie on Tuesday. The franc was down 0.3 percent at 1.2108 at 1113 GMT.

The Swiss National Bank imposed a cap on the franc at 1.20 per euro in September 2011 to shield the economy after the currency soared by a quarter in just a few months, pushed up by safe-haven flows fleeing the euro zone crisis.

"We encourage our customers to keep their Swiss franc balances as low as possible, considering their usual cash clearing needs with us," UBS said in a statement to clients seen by Reuters.

"We will start applying a charge for credit balances maintained by financial institutions in their franc cash clearing accounts with UBS in Zurich, effective December 21, 2012," UBS said.

The SNB declined to comment on the UBS move.

Economists polled by Reuters predict that the SNB will reiterate its commitment to hold down the franc at its quarterly monetary policy meeting on Thursday.

A majority of economists do not expect Swiss officials to resort to additional measures to deter safe-haven flows if the euro zone crisis continues to fester.

Of those who did expect further measures, a charge on sight deposits - the cash commercial banks hold with the central bank - was considered the most likely, followed by forcing commercial banks to charge offshore clients to hold franc deposits.

Two months ago, Bank of New York Mellon and State Street were among custody banks to begin charging fund management clients for deposits in Danish crowns and Swiss francs.

Rock bottom interest rates in Denmark and Switzerland have made it difficult for the custody banks, which administer funds for asset managers and pensions, to cover their costs in certain areas.

(Reporting by Katharina Bart; editing by Patrick Graham)

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