Swiss National Bank (SNB) Investment and risk control process

Investment and risk control process

The National Bank Act (NBA), which entered into force in 2004, defines the SNB’s responsibilities and describes in detail its mandate with regard to asset management.

Bank Council and Risk Committee

The Bank Council is charged with the integral oversight of the investment and risk control process. It assesses the principles of the process and monitors compliance with them. The Risk Committee – which is composed of three members of the Bank Council – supports the Bank Council in this task and monitors risk management in particular. All internal reporting carried out is addressed directly to the Governing Board and Risk Committee. To avoid conflicts of interest, the responsibilities for monetary policy and investment policy operations are largely separated on the operational level.

Governing Board

The Governing Board decides on the composition of the currency reserves and other assets. The Governing Board also defines the requirements with regard to security and liquidity of the investments as well as the eligible currencies, investment categories, instruments and debtors. It generally decides on the investment strategy once a year. The investment strategy encompasses the allocation of total assets to the different portfolios and the guidelines for their management, in particular the allocation to different currencies and investment categories, as well as the leeway for active management on an operational level.

Operational level

An internal Investment Committee determines the tactical allocation on an operational level. Within the strategically prescribed range, it adjusts the currency allocation, the duration or the amount allocated to different investment categories. In this way, it adapts allocation to suit changing market conditions. The management of the individual portfolios is the responsibility of Portfolio Management. The majority of investments are managed by internal portfolio managers. External asset managers are used to obtain efficient access to specific investment categories and for conducting performance comparisons with internal portfolio management.

Risk management

The investment strategy is based on central bank-specific requirements and comprehensive risk/return analyses. Risk management and limitation is carried out by means of a system of reference portfolios, guidelines and limits. All relevant financial risks on investments are identified, assessed and monitored continuously. Risk measurement is based on standard risk indicators and procedures. In addition to these procedures, sensitivity analyses and stress tests are carried out on a regular basis. The National Bank’s comparatively long-term investment horizon is taken into account in all of these risk analyses. To manage and assess credit risk, information from major rating agencies, market indicators and in-house analyses are used. Credit limits are set based on this information and adjusted whenever the assessment of counterparty risk changes. Concentration and reputation are also factored in when determining risk limits. Risk indicators are aggregated across all investments. Compliance with the guidelines and limits is monitored daily. Quarterly risk reports for the attention of the Governing Board and the Bank Council’s Risk Committee document the results of risk management activities.