The Swiss National Bank posted its biggest losses to date at 132 billion Swiss francs, but the nation will still be able to avoid a recession.

The Swiss National Bank (SNB) revealed this week that it lost 132.5 billion Swiss francs in 2022 – the biggest loss ever reported in the bank’s 115-year history.

By the numbers

At the beginning of 2022, SNB had CHF204.2 billion in equity. By the end of the year, the bank’s equity had shrunk to CHF65.8 billion. For reference, SNB posted a profit of CHF26 billion in 2021.

The loss, which amounts to about two-thirds of the bank’s equity, was largely caused by a plummet in the bond and stock markets. The bank lost about CHF72 billion in bonds and CHF41 billion in shares.

In addition, the stronger Swiss franc also reduced the value of SNB’s investments in foreign currencies when they were converted back to CHF. About CHF131 billion was lost in foreign currencies. This was largely due to foreign exchange market interventions as foreign exchange reserves dropped in value.

The 2022 loss wiped out the SNB’s reserve of CHF102 billion francs, meaning that the SNB will not make any payouts to the central or cantonal governments. It is only the second time this has happened since 1907.

Switzerland is not alone

Despite the considerable losses, it is not time to sound the alarm, financial experts say.

“Even if equity was wiped out altogether this wouldn’t change monetary policy in the short term as the SNB can operate without equity,” UBS economist Alessandro Bee told Reuters. “Only in the case of a prolonged period of negative equity I would see an impact on monetary policy. But we’re far from such a scenario even after the huge loss of last year.”

Moreover, SNB’s losses may sound shocking because it may be one of the only central banks reporting accurately, according to NZZ journalist Peter A. Fisher.

“While central banks such as the [European Central Bank] and the German Bundesbank ‘hide’ their losses by valuing the government bonds they hold at cost price and not at market price, the SNB, as a joint-stock company, prepares its balance sheet according to the relevant rules,” Fisher writes, adding that if other central banks “were to report the consequences just as transparently, the effects of the ultra-expansive monetary policy of recent years would also become apparent in their case.”

According to a report from the ECB, Europe’s largest bank lost 1.6 billion euros in 2022. The German Bundesbank reported a 172 million euro loss for 2022, as well.

“For the Bundesbank, what was once a German strength — the capacity of its government to borrow at negative interest rates due to the relative health of its economy — has become a burden,” writes Johanna Treek in Politico. The Bundesbank will now have to “bear the cost of a mountain of negative-yielding assets acquired as a result of its asset purchases, meaning it has to pay its Treasury for the privilege of holding German government bonds.”

Even fiscally conservative countries such as Finland and the Netherlands posted losses for 2022.

While Russia invading Ukraine can account for some stress, the real losses are coming from “massive support measures central banks took to prevent the eurozone from falling apart during the sovereign debt crisis, as well as to thwart an economic crisis during the global pandemic,” Treek writes.

The SNB will give its next update on March 23, but already the bank is projecting a sunnier outlook. Financial experts say Switzerland will be able to sidestep a recession.

This article may be freely shared and re-printed, provided that it prominently links back to the original article.