Questions and answers on the SNB's balance sheet
What is special about the SNB's balance sheet?
The balance sheet is primarily a reflection of the SNB's monetary policy activities. It results from the execution of the SNB's mandate to ensure price stability while taking due account of economic developments (Questions and answers on monetary policy strategy). The operations conducted by the SNB in fulfilment of its mandate affect the size and composition of its assets and liabilities, and can thereby exert a major influence on the development of the SNB's balance sheet.
Why does the SNB draw up a balance sheet like an ordinary company?
Under the National Bank Act (NBA), the SNB is a special-statute joint-stock company. The provisions of the Code of Obligations relating to joint-stock companies apply in principle to the SNB, too. The SNB's annual financial statements consist of the income statement, the balance sheet and the notes. They are drawn up in accordance with generally accepted accounting principles while taking due account of the specific requirements of the SNB. The SNB must also comply with the regulations of the Swiss stock exchange, as its shares are listed there.
Where can I find facts and figures on the development of the SNB's balance sheet?
How does the SNB value its assets and liabilities?
As a rule, the SNB's valuation principles are the same as those commonly applied by other listed companies (market value). The SNB reports assets and liabilities in Swiss francs. The accounting and valuation principles are outlined in detail in the Annual Report.
What are the assets on the SNB's balance sheet made up of?
The SNB's assets consist for the most part of currency reserves and, to a much lesser extent, of financial assets in Swiss francs. The majority of the SNB's assets, in particular the foreign currency investments and the claims from repo transactions in Swiss francs, fulfil important monetary policy functions. The size and composition of the assets are therefore determined by the established monetary order and the requirements of monetary policy. This is also why the ratio of Swiss franc investments to currency reserves can change over time. Since mid-2012, for example, there have been no outstanding claims from repo transactions in Swiss francs. They are currently unnecessary for steering the Swiss franc money market because liquidity is at an exceptionally high level as a result of foreign currency purchases carried out to counter the strength of the Swiss franc (Questions and answers on monetary policy implementation). The SNB's currency reserves also include its gold holdings.
What are the SNB's currency reserves made up of?
Foreign currency investments make up the bulk of the currency reserves. They consist of bonds, equities and investments at central banks and the Bank for International Settlements in foreign currencies. Foreign exchange reserves are foreign currency investments minus sight deposits from foreign currency repo transactions (which can be concluded for the management of the foreign exchange investments). As stipulated by art. 99 of the Federal Constitution, the SNB holds part of its currency reserves in the form of gold. The reserve position and the Special Drawing Rights at the International Monetary Fund (IMF) also belong to the currency reserves.
Is the SNB obliged to hold currency reserves?
Yes, it is. The SNB is required by the Federal Constitution to set aside sufficient currency reserves from its earnings. This requirement is outlined in greater detail in the NBA, which states that the SNB is obliged to set up provisions permitting it to maintain the currency reserves at a level necessary for monetary policy. In so doing, it must take into account economic developments in Switzerland (art. 30 para. 1 NBA).
Why do the Federal Constitution and the NBA oblige the SNB to hold currency reserves?
Central banks require currency reserves to ensure that they have room for manoeuvre in their monetary policy at all times. Moreover, strong currency reserves build confidence in the currency and help to prevent or overcome potential crises.
In what way do currency reserves increase a central bank's room for manoeuvre?
In certain circumstances, a central bank may have to draw on its currency reserves - for example to counteract a sharp and unwarranted depreciation of its country's currency. It can thereby combat a loss of value and the associated threat of inflation. In a small country like Switzerland with its internationally important financial centre, currency reserves are also important with regard to confidence. Adequate currency reserves indicate that the SNB is in a position to take far-reaching measures on its own, for example, to overcome a crisis in the financial system.
How does the SNB build currency reserves?
As a rule, the SNB builds currency reserves from its earnings. This is why it does not distribute its entire profit. Part of the profits are retained and allocated to the provisions for currency reserves and therefore to the SNB's equity capital (Questions and answers on equity capital and profit appropriation). Currency reserves can, however, also be formed in other ways - by creating base money or by borrowing in a foreign currency.
Why have the SNB's balance sheet, and especially the currency reserves, expanded to such an extent over the past few years?
In the last few years, the volume of the currency reserves has been largely determined by the implementation of the SNB's monetary policy. Since 2009, currency purchases have played a key role in combating the excessive appreciation of the Swiss franc. When foreign currency purchases are necessary, there is an increase in foreign currency investments and therefore also in currency reserves and the balance sheet total. In 2012, foreign currency investments rose rapidly and very substantially. Since then, the growth in provisions for currency reserves has been unable to keep pace with the growth in currency reserves.
Can direct conclusions regarding the SNB's foreign exchange transactions be drawn from changes in the stock of foreign currency investments?
No. Changes in foreign currency investments cannot automatically be attributed to purchases or sales. Exchange rate fluctuations and changes in the prices of equities and bonds all play a role in this context.
What are the liabilities on the SNB's balance sheet made up of?
The liabilities on the SNB's balance sheet essentially consist of banknotes in circulation, sight deposits held at the SNB, liabilities from Swiss franc repo transactions, SNB debt certificates (SNB Bills), foreign currency liabilities and the SNB's equity capital. The majority of the liabilities directly reflect the implementation of the SNB's monetary policy, i.e. providing liquidity to or absorbing liquidity from the money market. This is how the SNB influences the interest rate level. Since 2009, the supply of liquidity to the money market has been dominated by foreign currency purchases, which the SNB uses to counter upward pressure on the Swiss franc. The money market has been provided with substantial liquidity through purchases of currency in exchange for Swiss francs, which is reflected on the liabilities side by a steep increase in sight deposits. By contrast, at the moment there are no liabilities from Swiss franc repo transactions and no SNB Bills outstanding. These are liquidity-absorbing instruments, for which there is currently no need from a monetary policy perspective.
What are the sight deposits at the SNB made up of?
The sight deposits of domestic banks make up the largest portion of sight deposits at the SNB. They form the basis for the SNB's operations to steer liquidity on the Swiss franc money market, and are also used for the settlement of cashless payment transactions in Switzerland. Other components of sight deposits are liabilities towards the Confederation, sight deposits of foreign banks and institutions, and other sight deposits. This latter item consists primarily of sight deposits of non-banks (clearing offices, insurance companies, etc.).
Are sight deposits a form of borrowed capital and therefore SNB debts?
Sight deposits at the SNB - just as banknotes in circulation - cannot in an economic sense be equated with capital borrowed by a normal company or a commercial bank, since sight deposits and banknotes can only be exchanged for other legal tender, in other words banknotes or sight deposits, respectively. Moreover, they do not have a maturity or repayment date, and their amount can essentially be determined by the SNB.