Questions and answers on the SNB's independence and its relationship with the Confederation
What is meant by the independence of the SNB?
The Federal Constitution entrusts the SNB, as an independent central bank, with the pursuit of monetary policy that serves the overall interests of the country (art. 99 para. 2). The SNB's independence comprises four aspects - functional, financial, institutional and personnel independence - all of which are described in detail in the National Bank Act (NBA). Financial, institutional and personnel independence form the foundation upon which, in practice, functional independence is secured.
What is meant by functional independence?
Functional independence refers to the fact that the SNB and its organisational bodies are prohibited from seeking or accepting instructions from either the Federal Council or the Federal Assembly or any other body in fulfilling its monetary tasks (art. 6 NBA). Consequently, monetary policy decisions are taken solely by the body charged by the NBA with this task, the Governing Board (Questions and answers on the SNB as a company).
Does functional independence mean that the SNB can conduct monetary policy without any supervision by the Confederation?
No. First, the independence granted to the SNB does not apply absolutely, but only with regard to the fulfilment of its statutory mandate. Second, as a counterbalance to its independence, the NBA places upon the SNB - specifically the Governing Board - the duty of accountability and the duty to provide information towards the Federal Assembly and the Federal Council. Every year, the SNB submits an accountability report to the Federal Assembly on how it has fulfilled its statutory tasks. It also explains its monetary policy to the relevant parliamentary committees. The SNB and the Federal Council discuss the economic situation and monetary policy, as well as topical issues relating to the Confederation's economic policy. Before decisions of major economic or monetary importance, the Federal Council and the SNB keep one another informed of their intentions.
How does this exchange between the SNB and the Federal Council work in practice?
On the one hand, the Governing Board of the SNB and members of the Federal Council meet regularly to discuss the general economic situation and other issues of mutual interest. On the other, towards the end of the year, the Federal Council invites the Chairman of the Governing Board to attend one of its meetings for an exchange of views. Federal Councillors and members of the Governing Board also meet bilaterally to discuss topics of mutual interest, such as the International Monetary Fund. The briefings and the exchange of information between the Federal Council and the SNB are generally confidential.
How does the SNB inform the public of its activities?
The SNB informs the general public about its monetary policy decisions and about balance sheet developments via press releases and news conferences. It also issues numerous publications on topics including monetary policy, financial stability, asset management, statistics and its research. In its Annual Report, the SNB renders account on the fulfilment of its statutory mandate and provides detailed information on its business activities and balance sheet. SNB executive management regularly responds to current and fundamental issues relating to monetary policy in speeches and interviews. By explaining its policy and accounting for its decisions and their consequences, the SNB makes its activities transparent. The SNB is also required to provide a high degree of transparency owing to its status as a special-statute joint-stock company listed on the stock exchange. All of the information on offer is available at www.snb.ch.
Why is the SNB's independence important?
Swiss legislators granted the SNB independence because independent central banks are generally better at ensuring price stability. This is borne out, first, by historical experience - which shows that central banks directly subordinated to governments are more likely to lose sight of the goal of price stability - and, second, by academic studies. Furthermore, there is often a discrepancy between the timeframes of politics and of central banks; it may take a long time before the impact of monetary policy decisions becomes apparent. Price stability, on the other hand, is so important because it is a major prerequisite for a thriving economy in the long term (Questions and answers on monetary policy strategy).
What is meant by the financial independence of the SNB?
Financial independence comprises two elements. First, the SNB is entrusted with budgetary autonomy, which arises - among other things - from its legal status as a special-statute joint-stock company. Second, the SNB is prohibited from granting loans to the Confederation (art. 11 NBA), thus preventing direct access by the state to the printing of money.
Why is the SNB prohibited from granting loans to the Confederation?
The SNB has a mandate to ensure price stability, while taking due account of economic developments. Experience indicates that central banks are better able to fulfil this mandate when the state is not permitted to use money creation for financing purposes. This is in order to avoid conflicts of interest. For example, if the central bank needed to increase interest rates to ensure price stability at a time when the state required more money, the interests of the two parties could collide if the central bank were not independent of the state.
Does it follow that SNB assets do not include any Swiss government bonds?
The SNB may not acquire newly issued Confederation, cantonal or municipality debt securities. It may, however, purchase such bonds on the secondary market. At end-2019, the SNB held CHF 974 million in Confederation bonds, which corresponds to just over 1.6% of the outstanding total of Confederation bonds.
Does that mean that the SNB doesn't provide any services to the Confederation?
No. The NBA states that the SNB may provide banking services to the Confederation. The SNB is therefore also known as the banker to the Confederation. Thus the SNB effects payments on behalf of the Confederation, whereby the Confederation's transactions in Switzerland or abroad are conducted via its sight deposit accounts at the SNB. The SNB provides the services for an adequate consideration unless they facilitate the implementation of monetary policy, in which case they are free of charge.
What other banking services does the SNB provide to the Confederation?
The SNB issues money market debt register claims and bonds on behalf of and for the account of the Confederation. It also acts as paying agent for coupons and repayments of Confederation bonds and money market debt register claims. Further banking services provided by the SNB for the Confederation include the maintenance of securities custody accounts and the settlement of money market and foreign exchange transactions.
What is meant by the SNB's independence in institutional and personnel matters?
The SNB's institutional independence rests on it being an independent legal entity with an organisation of its own. The independence of the SNB in personnel issues is secured by the fact that members of the Governing Board and their deputies may be removed from office during their term of office only if they no longer fulfil the requirements of their office, or if they have committed a grave offence. In addition, at six years, the term of office is relatively long.
Why is it important to have independence in personnel matters?
The Confederation cannot influence the Governing Board's decisions through the selection of personnel. It is thus prohibited from replacing members of the Governing Board with persons acting according to its own wishes, for example in the event that it disagrees with a decision by the Governing Board. In addition, when appointing members of the Governing Board, the Federal Council may only act on proposals submitted by the Bank Council. The SNB's statutory independence in personnel matters therefore contributes to securing its functional independence in practice.