In January 2011, the Swiss National Bank (SNB) announced that it had lost 21 billion francs over the course of the previous year. With most Swiss banks reporting positive results for 2010, it seemed hard to grasp that the central bank had performed so badly. But was the comparison fair? In a recent question-and-answer session following his talk at the Club of Rome in Zurich, SNB President Philipp Hildebrand defended his monetary policy.
Had Philipp Hildebrand made the cut during the selection of Switzerland's swim team for the 1984 Los Angeles Olympics, his career might have taken a different turn. An extended swimming career could well have slowed his ascent in the world of high finance--albeit temporarily. Luckily, Hildebrand abandoned competitive sports in favour of a high-flying career that would see him reach the pinnacle of Swiss banking at only 47. As he enters the Kunsthaus in Zurich, his robust stature hints at his early vocation, but it also serves to reinforce his status as the top regulator of Switzerland's financial system.
As he launched into his presentation, the SNB president commented in detail on measures, which the central bank took to deal with the enormous shocks recently experienced by global financial markets. He emphasised that first and foremost, his mandate must be to ensure price stability in a changing economic environment: buying euros by the billion had been necessary to prevent the Swiss franc from rising even higher than it had already. Citing how intertwined the world's national financial systems had become, Hildebrand told his audience how constant contact and collaboration between national banks were imperative in times of crisis. His support for the "too big to fail" policy is no secret: a point that was illustrated by his wry comment, "system-relevant financial institutions have known since autumn 2008 that they are simply too important to be let down".
Assessing the SNB's efforts to fight the crisis, Hildebrand concluded that the central bank took all the measures necessary for the stability of the Swiss franc. He seemed equally confident that the Eurozone would eventually find its way back to stability, calling for all states to exercise greater fiscal discipline.
When asked by the talk's moderator Bruno Affentranger about how he saw the threat posed by inflation--especially given Switzerland's apparent rapid recovery from the economic downturn--he replied: "The international environment is an extremely important factor for inflation. As one of the smallest open economies in the world, Switzerland depends on its direct neighbours, who together account for 60 per cent of our exports. Despite ongoing difficulties in some southern European...