Is the SNB’s institutional framework still appropriate to our times?

109th Ordinary General Meeting of Shareholders of the Swiss National Bank, 28.04.2017

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Central banks, including the SNB, have been in the focus of public interest for some time now. The unconventional measures that central banks have been forced to take in connection with the financial crisis in order to fulfil their monetary policy mandate are probably the main reason for this. In the case of Switzerland, these measures are, specifically: setting and subsequently discontinuing a minimum exchange rate, and introducing negative interest.

These events have also raised questions regarding the SNB’s institutional framework, as laid down primarily in the National Bank Act (NBA). Some were submitted in the form of parliamentary procedural requests, and a summary of the Federal Council’s response was published in its monetary policy report at the end of December 2016. Three key aspects for the SNB are its independence, transparency regarding its activities, and the size of the Governing Board. In its report, the Federal Council comes to the conclusion that – especially in view of specific Swiss characteristics – the institutional framework has proved its worth, that there is no need for any modification, and that the SNB is able to fulfil its mandate effectively on the existing legal basis. However, the law also makes the SNB accountable and responsible for its actions. Requirements in this regard are especially strict today.

The rules governing the calculation and distribution of SNB profits are a further component of the institutional framework. They are also laid down in the NBA and serve to maintain the SNB’s room for manoeuvre in the long term. Regarding the allocation of profit for the 2016 financial year, the principal legislation and the key goals remain unchanged. Due to recent developments, however, some adjustments were necessary in order to strengthen the SNB’s capital base. They include a minimum annual allocation to the provisions for currency reserves of 8% of the existing provisions. In accordance with the new agreement between the Federal Department of Finance and the SNB governing the 2016 to 2020 financial years, the amount to be distributed annually to the Confederation and the cantons remains at CHF 1 billion provided the balance of the distribution reserve is positive. As of now, however, the distribution amount will be increased as long as the distribution reserve does not thereby fall below CHF 20 billion. The level of this supplementary distribution has been defined in the new agreement and capped at CHF 1 billion. Lastly, omitted or reduced distributions will be compensated for in subsequent years if the distribution reserve does not become negative as a result.

These changes show that the SNB’s institutional framework allows for sufficient flexibility to react to changed circumstances, thereby giving the SNB the necessary scope to fulfil its mandate in the interests of Switzerland as a whole – even in a unsettled international environment.