SNB Shifts Currency Market Risks to Taxpayers, Economists Say
(Bloomberg) — A group of economists critical of the Swiss National Bank said the central bank is shifting financial risks onto taxpayers by retaining too much of its profits rather than distributing them to the national government and the cantons.
The group — known as the SNB Observatory — argues that this policy effectively exposes public finances to volatility stemming from currency market swings, while insulating the central bank’s own balance sheet.
According to the three economists, the SNB is better equipped than state treasurers to handle such risks. Its reluctance to take them on reflects an overly conservative approach to capital management, rather than a necessity dictated by financial stability concerns, they told reporters on Thursday.
Switzerland’s central bank deducts a part of its annual profit from the amount eligible for payouts and allocates the money to an internal fund dedicated to offset FX-market swings. Policymakers determine the size themselves.
President Martin Schlegel has argued that this is necessary because the size of its balance sheet exposes the institution to outsized risks. The SNB’s 880 billion-franc ($1.1 trillion) balance sheet is primarily made up of holdings in foreign currencies, accrued as a result of decade-long purchases to weaken the franc.
The SNB declined to comment on Thursday’s criticism.
To support their argument, the economists — Yvan Lengwiler, Stefan Gerlach and Charles Wyplosz — calculated that even if the SNB had consistently distributed the equivalent of 0.5% of its assets every year since 2011, its equity wouldn’t have fallen below zero — including after 2022, when collapsed valuations of its asset hoard resulted in the central bank’s largest loss in a century. The findings, they say, underscore that more generous payouts could be sustained without jeopardizing the SNB’s financial position.
Distributions from the central bank fluctuated widely over the past decade, with the SNB skipping payouts altogether for the years 2022 and 2023. The institution is due to report earnings for the first quarter on April 23.
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