Swiss National Bank Under Fire: Economists Challenge Profit Distribution Policy
The trio of economists Stefan Gerlach, Yvan Lengwiler and Charles Wyplosz have criticized the Swiss National Bank (SNB) for failing to distribute profits to the cantons and the Confederation for the second time in a row. In a commentary published on Monday night, the experts, who operate under the name “SNB Observatory”, write that the lack of a distribution is not the necessary result of the SNB’s financial situation.
With a current provision for currency reserves of CHF 113 billion, it can easily afford the CHF 6 billion that it has distributed in previous years, it says. Year after year, the SNB decides to fill this basket at the expense of the distribution reserves.
The cantons and the Confederation rightly complained about the arbitrary provisioning policy, according to which the provisions are increased by 10 percent every year without justification. This deprives them of their rightful share of the assets that belong to the people, they criticized. “The Bank Council would be in a position to change this practice, as it is part of its mandate to approve the provisions policy proposed by the Governing Board,” it says.
According to the President of the Conference of Cantonal Finance Directors (FDK), it is painful for the cantons themselves that the SNB’s profit distribution will be canceled for the second time in a row. However, as the announcement did not come as a complete surprise, the cantons had been cautious when budgeting for any distributions by the SNB, Zurich Finance Director Ernst Stocker (SVP) told the Keystone-SDA news agency last week.
The SNB’s interim results and the balance sheet loss existing at the end of 2022 had already “indicated a risk”. The short-term impact on the canton’s finances is therefore likely to be limited on average.
Loss of around 3 billion
The SNB is foregoing a distribution to the cantons and a dividend because it made another loss in 2023. Specifically, according to provisional calculations for the full year 2023, the SNB reported a loss of around CHF 3 billion last week (previous year: -132.5 billion).
The SNB’s result is always heavily dependent on the development of the gold, foreign exchange and capital markets, which is why strong fluctuations are the rule. As is well known, the central bank is sitting on a huge mountain of foreign currencies. These were bought to defend the minimum euro exchange rate, which was abandoned in 2015, and then to weaken the franc.
Although the SNB has reduced foreign currency on a large scale in recent quarters, thereby reducing its balance sheet somewhat, further currency sales are unlikely in the coming months due to the recent strong appreciation of the Swiss franc. At the end of 2023, the SNB’s equity amounted to around CHF 63 billion, with total assets of just under CHF 800 billion.
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