Investment and risk control process

The National Bank Act (NBA) 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. It monitors risk management, in particular, and evaluates the governance of the investment process. Internal risk management reporting is addressed to the Governing Board and the Risk Committee.

Governing Board

The Governing Board defines the principles of the investment policy. In particular, it sets out the requirements with regard to the security, liquidity and return of the investments, as well as the eligible currencies, investment categories, instruments and borrower categories. The Governing Board decides on the composition of the currency reserves and other assets, and defines the foreign currency investment strategy. The investment strategy covers the allocation of foreign currency investments to different investment categories and currencies, and determines the scope for active management at 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. Portfolios from the Asia-Pacific region are managed by internal SNB portfolio managers in the Singapore branch office, which was opened on 1 July 2013. Its activities, especially trade and portfolio management, are fully integrated into the investment and risk control process in Switzerland. 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. The SNB’s comparatively long-term investment horizon is taken into account in all of these risk 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. 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. In addition, the annual risk management report is submitted to the Bank Council.