Central bank chief says trust is a long way off

Jean-Pierre Roth was speaking in Zurich Keystone Archive

The president of the Swiss National Bank, Jean-Pierre Roth, says it will be a long time before trust is restored in the financial markets.

Addressing an audience of CEOs in Zurich, Roth said that as long as executives were under pressure to maximise short-term profits, the temptation to fiddle the books would continue.

“As long as the rules of the game prize short-term gain over long-term earnings stability, the temptation to cheat by manipulating the market will remain strong,” he said in a speech to the Swiss-American Chamber of Commerce.

Roth told the assembled CEOs that the fallout from recent financial scandals had unearthed several dormant issues that had “twitched the nerves” of the financial markets.

This had generated considerable discussion in the financial press, on the airwaves and in the corridors of government buildings.

He added that it was “vital” for companies – not just politicians and the public – to determine if there were weaknesses in legislation or regulations so that they too could correct and begin their part in the process of rebuilding investor confidence.

Trust undermined

“This setback in investor confidence undermined the required trust in financial markets that the right rules are in place and that those rules are being enforced,” he said.

“While the issues are complex, the list of proposed solutions is long. This all suggests that consensus and reform will not be achieved overnight.”

Roth called on corporations to continue to build on the social capital entrusted in them by investors.

“They should promote the efficient operation of financial matters and optimise the benefits that markets can bring to everyone in society,” he commented.

Strong fundamentals

Turning to the present challenges faced by the global economy, Roth said he was convinced that the fundamentals were in place for a return to a sustained growth.

“Inflation is low in almost all industrial countries, monetary policy is supporting the recovery, household consumption still plays a stabilising role, and public finances, despite short-term difficulties, are not far from equilibrium,” he said.

However, he admitted that there was “considerable uncertainty” surrounding the slowdown in investment spending and the dim prospects for corporate earnings.

Referring to the role of the National Bank, Roth said that maintaining price stability was one of its “key trust-building” responsibilities that brought a long list of benefits.

“This allows financial markets and businesses to operate more efficiently. As for the National Bank, it can conduct monetary policy more easily with expectations strongly anchored.”

Roth pointed out that the Bank had made recent interest rate cuts as a reaction to the increasing signs from Switzerland and abroad that pointed to a delay in the economic recovery and slower-than-anticipated growth this year.

“These actions are undertaken with an eye on keeping price stability in check,” he said.

“This is the best contribution the Swiss National Bank can make to restore confidence in the economy and promote a strong and sustainable recovery,” he added.

swissinfo

In brief

Roth said the culture of maximising profits at the expense of long-term earnings stability was undermining trust in the markets.

He said companies needed to do more to build trust, rather than wait for politicians to legislate.

He added that the economic fundamentals were in place for a return to a sustained growth.

And he re-affirmed that the Central Bank was committed to price stability and would move interest rates accordingly.