SNB distributions - not a matter of course even when profits are high

Thomas Jordan, Chairman of the Governing Board

113th Ordinary General Meeting of Shareholders of the Swiss National Bank, Zurich, 30.04.2021

The profits generated by the SNB and the distributions it makes have frequently been the subject of discussion in Switzerland. The question as to the principles of how the SNB should distribute profits was already answered in the run-up to its foundation more than 100 years ago. The profits should first be used to build up the SNB's equity capital and to pay a modest dividend to shareholders. The remaining profit then goes to the public sector, with at least two-thirds accruing to the cantons.

The reason why the profit distributions accrue to the Confederation and the cantons is that the SNB's profits are the result of its monopoly on issuing legal tender, thanks to which it generates profits on average over the long term. However, against the current backdrop of very low yields and high upward pressure on the Swiss franc, it cannot be taken for granted that the SNB will achieve a profit. Generating profits is in any case not the SNB's aim. The Federal Constitution and the National Bank Act state that it must as an independent central bank pursue a monetary policy that serves the overall interests of the country. The SNB's monetary policy mandate always takes precedence, and there can also be times when fulfilling this mandate means accepting losses.

The SNB's total assets have multiplied since the outbreak of the financial crisis in 2008. With this larger balance sheet, the earnings potential has increased in absolute terms, but so too has the risk of loss. Because the robustness of the balance sheet takes precedence, the SNB first makes provisions before making any profit distributions. And since a profit in any given year can be followed by a loss the next, the SNB does not pay out all of the distributable profit at once, but rather seeks to smooth the distributions. Maintaining the distribution reserve acts as a buffer, thereby ensuring that the Confederation and the cantons are seldom faced with years in which no distributions can be made.

A new profit distribution agreement was concluded with the Federal Department of Finance at the beginning of 2021. It takes into account the marked growth in the SNB's balance sheet and the pronounced increase in the distribution reserve. The annual distribution is linked to the amount of the net profit. The maximum distribution is CHF 6 billion, this being paid if the net profit exceeds CHF 40 billion. The SNB has also increased the minimum annual allocation to the provisions with a view to strengthening its balance sheet.