SNB independence put to the test

Hildebrand in happier times before his fall Keystone

The shock wave caused by the January resignation of Swiss National Bank (SNB) chairman Philipp Hildebrand has settled down. The central bank’s monetary policy, however, is still a target for politicians and pressure groups.

This content was published on September 6, 2012 minutes

When the SNB set a SFr1.20 exchange floor against the euro a year ago the strategy was first met with a chorus of sceptical criticism. Rightwing politicians, led by the Swiss People’s Party, said it was too risky following the losses incurred in previous SNB interventions.

The political left and trade unions accused the SNB of being too cautious while some economists, financial traders and journalists warned that that the currency peg could backfire if the euro slumped further. Fears were also raised that it could result in rampant inflation and a real estate bubble.

The criticism then turned personal as Hildebrand’s wife was accused of profiteering from the SNB’s interventions with her own currency trades.

Evidence, in the shape of private records stolen from the Hildebrands’ bank by an IT employee, was enough to seal the SNB president’s fate. It also left a smear on the reputation of People’s Party strongman Christoph Blocher and other party colleagues when they came under police investigation on suspicion of handling stolen data.

In the light of the political fallout, all parties emphasised their support for the independence of the central bank. But the political pressure on the SNB has continued unabated.

Cold feet

No central bank can operate in a political vacuum when its policies have such a profound effect on so many people, according to Charles Wyplosz, currency expert at Geneva’s Graduate Institute.

“The SNB will face issues managing such a huge portfolio of foreign currency reserves,” he told “It will continuously have to find new drawers in which to put its euros.”

“There will inevitably be political pressure at some point as some politicians will get cold feet about the risks of such a strategy.”

In March, parliament rejected proposals from the People’s Party to restrict the central bank’s currency deals and to impose a minimum level of assets to cover liabilities.

Party financial affairs spokesman Hans Kaufmann is concerned about the potential fallout of intervening so heavily in one currency.

“This strategy is in effect intervening in the monetary policy of the European Union,” he told “How will the SNB sell all these assets without influencing the infrastructure of the eurozone?”

Kaufmann is also worried that the SNB is putting too many of its eggs into one basket. He calculated that the Swiss central bank now holds close to ten per cent of German government debt which would fall in value if ratings agencies downgrade Europe’s largest economy.

“Rather than the restrictive policy of investing in government bonds, we are advocating the creation of a separate fund with the mandate to take strategic positions in certain industries, such as telecoms, or in raw materials.”

“This is not an intervention in monetary policy but an intervention into investment policy.”

Arm twisting

The centre-left Social Democrats have also been accused of trying to twist the SNB’s arm, firstly be joining exporters, trade unions and tourism industry demands that it set its exchange rate ceiling at SFr1.40 to protect jobs.

Leading party member Susanne Leutenegger-Oberholzer called on the SNB this summer to set negative interest rates and capital controls to dampen the inflow of foreign investors parking their assets in Switzerland.

She also demanded that domestic banks stop handing out mortgage loans to foreigners if the pressure on the franc intensifies.

The SNB does not just face pressure from political parties. Several powerful lobby groups, representing different industrial groups, the tourist trade, workers, small and medium-sized enterprises (SMEs), pension funds, the cantons and the financial sector have ways of making their voices heard.

Swissmem, the umbrella group for electrical and mechanical engineering firms, has repeatedly joined calls from trade unions and the Social Democrats to raise the exchange rate floor to help exporters.

In June, Hans-Ulrich Bigler, director of the Swiss Trades Association - representing many SMEs – criticised the SNB’s strategy, although his organisation swiftly distanced itself from his comments.


The SNB has also made some enemies in the financial sector after championing tough new regulations to clamp down on investment banking in recent years. The central bank has recently acquired new powers to crack down on mortgage lending – one of the few booming profit areas left for banks.

Not all groups are critical of the central bank. The Swiss Business Federation (economiesuisse) - that represents a broad spectrum of sectors - has supported both the general  policy and the SFr1.20 floor.

Swiss cantons could be forgiven for grumbling that their share of the SNB’s annual surplus profits have been cut from SFr2.5 billion to SFr1 billion. But Andreas Huber-Schlatter, secretary of the Conference for Cantonal Finance Directors told that the central bank is doing “an excellent job”.

“The aim of the SNB is not to produce profits, but to ensure price stability. We have always supported this principle,” he said.

The world of Swiss central banking may take some years to return to predictable - even boring – normality. Even though the SNB has supporters, it will continue to face pressure from both outside and within the country.

The Hildebrand affair

On January 9, SNB chairman Philipp Hildebrand resigned after weeks of speculation that his wife had profited from currency deals as the central bank was intervening in the markets.

Two months later the central bank tightened up its internal rules on private transactions by senior staff.

On April 18, Thomas Jordan, who had been acting as interim chairman since Hildebrand stepped down, was named as his permanent successor.

Zurich prosecutors arrested a former IT worker from Bank Sarasin as they launched criminal proceedings into the alleged theft of banking data.

In January, Swiss People’s Party chief strategist Christoph Blocher had his home searched for evidence and was questioned along with a Zurich cantonal parliamentarian and a lawyer working for the party.

In June, a Senate legal committee lifted Blocher’s parliamentary immunity, paving the way for a full investigation into his role in the Hildebrand affair.

However, Blocher declared that he would fight in the courts to have the investigation blocked.

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