Wednesday, October 5, 2011


The Swiss National Bank (“SNB”), is one of the country’s most venerated institutions, and arguably the best Central Bank in the world, amongst its increasingly discredited peers.

It is a publicly listed company, whose activities are regulated by the Swiss Constitution and statute. In particular it has to “act in the interest of the country as a whole”. The principal shareholders are the Cantons, the Cantonal Banks and other public institutions, for some 60%, and thereafter private shareholders for the balance.

The SNB has an11 man Bank Council, charged with the oversight of the activities, and a 3 man Governing Board, of which Philip Hildebrand is Chairman. Its main mandate is to ensure price stability, although it also has sole right to issue bank notes, and also holds the Swiss Gold reserves and foreign currency reserves.

If you are not financially minded please skip the section in italics.

The assets on the Balance Sheet of the SNB are principally Foreign Currencies CHF 281 Billion; Gold CHF 49 Billion and Other assets CHF 35 Billion.
Total CHF 365 Billion

The liabilities are Sight Deposits from domestic Banks CHF 192 Billion; Other Sight Liabilities CHF 32 Billion; SNB Debt Certificates CHF 44 Billion; Bank Notes CHF 49 Billion; Other Liabilities CHF 18 Billion and Shareholder Funds CHF 30 Billion.
Total CHF 365 Billion.

In summary, what the financial statements show, and is absolutely staggering is that the SNB Balance Sheet has swollen almost 300%, from a Total CHF 126 Billon in 2007, to CHF 365 Billion at end August, 2011, or over 60% of Swiss GDP.

Almost all the increase is in Foreign exchange holdings. At 30 June, 2011, the last figures published, this was composed of CHF 109 Billion in EUR; CHF 49 Billion in USD; CHF 19 Billion in JPY; and CHF 20 Billion Other. Total CHF 196 Billion.

This alarming situation gives rise to an initial series of key questions:

  • Where did the SNB get the Swiss Francs, used to buy  these foreign currencies
  • Why is SNB investing in currencies which are either going to be massively debased or go into oblivion
  • Why is SNB choosing to debase its citizens currency  in a race to the bottom
  • Why does SNB think it can ensure price stability in coming years
  • Why is  asset allocation  to EUR of 3.6x SNB equity,  a prudent strategy
  • Why is Gold backing allowed to drop from 27% of total assets 2007 to 13% today
  • Why does SNB consider these acts “in the interest of the country as a whole”

Good though they may be, SNB have not always got it right. We need look no further back than 2005, when they decided to sell 50% of the Swiss Gold holdings, considering they were no longer necessary. The remaining Gold has increased in value from CHF 34 Billion in 2007 to CHF 48 Billion today.

This time unfortunately the stakes are very much higher.

While this analysis is inevitably incomplete, its is up to the SNB to be accountable and fully transparent to their shareholders, the indirect stakeholders in the 60% held by the Cantons and the Cantonal Banks, as well as the Swiss population as a whole.

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