SNB loses Hildebrand’s global influence

Philipp Hildebrand (top left) had the ear of international financial deciders Keystone

The Swiss National Bank faces the challenge of retaining the sphere of international influence that had been built up by departing chairman Philipp Hildebrand.

Hildebrand was renowned as a slick networker who gained the ear of powerful policy makers, earning him a place at the high table of important global institutions. Such positions ensured that Switzerland’s interests were heard.

His eventual permanent successor can also expect to receive an invitation to join many international policy making bodies – such as the Financial Stability Board (FSB) – as the seat goes to the bank and not the individual.

But Hildebrand’s ability to swiftly work his way up the ladder at such groups is testament to the esteem in which he was held by the international financial community.

The next SNB chairman will also get the opportunity to shape the global financial regulatory landscape  as a member of the FSB, but Switzerland may well lose the vice-chairmanship that Hildebrand won in November.

Besides being a member of the board of directors at the Bank for International Settlements (BIS) and a member of its steering group, the SNB chairman is also Switzerland’s representative on the International Monetary Fund’s board of governors.

Global plaudits

“With him, Switzerland is losing an outstanding central banker with excellent international connections, which have brought great benefit to our country,” the Swiss National Bank (SNB) council stated in reaction to Hildebrand’s resignation on Monday.

Hildebrand also received plaudits from abroad even after he had stepped down following accusations of insider trading. “We all know that he is a man of total integrity, extraordinary ability and, most important of all, courage. Such people are rare. His country will miss him,” Bank of England governor Mervyn King said in a statement.

Hildebrand went one step further as an international financial player when he was accepted into the so-called Group of 30 economic makers and shakers in 2008. Here, he rubbed shoulders with former European Central Bank chairman Jean-Claude Trichet, ex-Federal Reserve chairman Paul Volcker and former US Treasury Secretary Larry Summers.

He was also a regular attendee and speech maker at the influential annual economic symposium of the Kansas Federal Reserve Bank held at Jackson Hole resort in the United States.

But such appearances on the international circuit earned Hildebrand as many brickbats as plaudits, particularly as he used such occasions to expound his views that risk-taking banks should be more heavily regulated.

Preening feathers

Members of the Swiss financial establishment and right wing politicians frequently accused the former SNB chairman of using his membership of such exclusive bodies to preen his own feathers rather than concentrate on his duties in Switzerland.

Martin Janssen, a professor at the Swiss Banking Institute at the University of Zurich and founder of the Ecofin financial consulting group, acknowledged that Hildebrand’s gift of communication was the perfect tool for representing Swiss interests abroad.

Janssen also praised Hildebrand for having the stomach and vision to throw his weight behind increased regulations that cracked down on the Swiss banking community.

But he questioned whether Hildebrand’s extensive circle of influential contacts and international outlook always served Switzerland’s best interests, particularly when the US started its campaign against Swiss banking secrecy.

Tightrope act

“Switzerland failed to properly restore a new banking order inside its own borders while he was on the governing board of the Swiss National Bank,” Janssen told swissinfo.ch.

“Switzerland has been under unrelenting pressure from the United States in the last few years. During this time, Hildebrand was said to be a good friend of Tim Geithner [current US Treasury Secretary] and to have had the ear of Paul Volcker, but how did this further the interests of Switzerland?” Janssen added.

“I am not sure that a Jackson Hole-oriented person was best suited to solve the problems in Switzerland.”

Hildebrand’s successor at the head of the SNB, whether it is interim chairman Thomas Jordan or another appointee, will also need to win over influential policy makers as part of the job.

Jordan is no slouch as an international communicator as chairman of the G10 central bank Counterfeit Deterrence Group, representing Switzerland on the Organisation for Economic Cooperation and Development (OECD) and a member of the Bellagio Group of economic academics and policy makers.

For a small country like Switzerland, with an relatively large financial centre, winning global friends during a time of extreme pressure is vital.

But as Hildebrand found out to his cost, winning friends at home is also important. Finding the right balance between international popularity and domestic trust may be key to the fortunes of the next head of the Swiss central bank.

The Hildebrand Affair

At the end of 2011, a rumour reached the media that SNB chairman Philipp Hildebrand had used his insider knowledge for personal gain.
 
First the media reported that the financial affairs of the Hildebrand family had been investigated by auditors and given the all clear.
 
Then details started emerging about an advantageous currency trade made by Hildebrand’s wife Kashya – a Swiss-American dual national. The implication was that she had inside knowledge about the bank’s plans to weaken the franc.
 
This was followed by revelations in some Sunday papers that the source of the information about the Hildebrands’ accounts was none other than Christoph Blocher, former justice minister, and deputy chairman of the right wing People’s Party. Then it turned out that he’d got the information from an employee of Sarasin Bank.
 
The next bombshell: the Weltwoche weekly magazine, which is close to the People’s Party, announced that it had “proof” that Philipp Hildebrand himself, not just his wife, had indulged in insider dealing.
 
Hildebrand spoke to the media on January 5, 2012, denying any wrong doing and completely rejecting calls for his resignation.
 
But he did say that transparency over the financial affairs of Swiss National Bank managers needed to be improved.
 
On January 9 Hildebrand faced the media again, this time to resign after realising he could not prove that he had been unaware of his wife’s transactions.