SNB’s Balance Sheet Is Just Too Big for Comfort, OECD Warns

(Bloomberg) — The Swiss National Bank’s large balance sheet “raises risks and challenges” that officials should take care to navigate, according to the OECD. 

The size of the central bank’s assets hoard, which has more than tripled since 2010 to about 105% of gross domestic product, means it’s vulnerable to very large losses, the Paris-based organization said in a report on Switzerland on Thursday.

Such potential shortfalls can threaten the institution’s equity and raise uncertainty on whether it can distribute profits to the government, the OECD said.

“The SNB should continue reviewing its investment strategy and maintain adequate safeguards to dampen risks arising from its large balance sheet,” it said.

After a record loss in 2022, the central bank has already canceled two annual payouts in a row. Last year, the SNB sold some foreign-currency assets to shield the economy from inflation. The resulting reduction of the balance sheet was “a welcome side effect,” according to the OECD.

The report also said:

• SNB’s monetary policy should remain tight until inflation is durably within its 0-2% target range
• The government should conduct an in-depth review of the Credit Suisse crisis and propose measures to strengthen regulation and supervision of large banks. Action by financial regulator Finma to strengthen its practices “would be welcome”
• The government should limit its spending given budget deficits, and also raise revenues from value-added tax and levies on immovable property
• Switzerland should tie the retirement age to increases in life expectancy. A plan to do this just failed in a plebiscite

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