SNB’s Jordan vows to continue radical intervention

In the past year, many western central bank leaders have squirmed in the spotlight. Few, however, are in such a delicate position as Thomas Jordan, the acting chairman of Swiss National Bank.

Last month, the SNB’s former head, Philipp Hildebrand, resigned when it emerged his wife had made currency trades shortly before the SNB intervened to weaken the franc against the euro last summer. That unexpectedly propelled Mr Hildebrand’s deputy into the limelight.High quality global journalism requires investment.

Now the hitherto low-profile banker is not only grappling with the backwash of that scandal, but also coping with the consequences of the eurozone crisis.

But, if Mr Jordan, 49, is feeling overwhelmed, he does not display it. Instead, during an interview with the FT – his first to a foreign newspaper – he repeatedly stresses that the SNB is fighting to keep a sense of stability.

Outwardly, the image has changed. Mr Hildebrand, a former hedge fund manager, was suave, wealthy, international and glamorous; Mr Jordan has a bookish, self-effacing air, befitting a man who was an academic before joining SNB in 1997.

However, SNB insiders say Mr Jordan holds strong views and worked very closely with Mr Hildebrand on SNB policies.

“It is always problematic when a central bank chairman has to resign,” he observes. “But the SNB is fully functioning and able to conduct monetary policy decisions exactly as we decided before – the board stands behind all our earlier decisions.”

By any standards, these decisions have been striking, particularly given the conservative nature of Swiss political culture.

Two years ago, the SNB intervened heavily in an unsuccessful bid to weaken the franc, creating massive accounting losses for the bank. Then, last year, in another bid to weaken the currency, the SNB unleashed the most dramatic bout of quantitative easing seen in the west. In a few short weeks it injected the equivalent of 40 per cent of gross domestic product into money markets. Then the bank announced plans to keep a minimum exchange rate of SFr1.20 to the euro, and intervened again.

“The minimum exchange rate does seem very credible now,” says Mr Jordan, who refuses to comment on whether the SNB is intervening at present. But the policy has been highly controversial at home.

“There will be a special session in parliament this spring to discuss the SNB, and there are issues which could affect [our] independence,” Mr Jordan says. “There are proposals to limit the instruments which can be used by the SNB, such as limiting the size of the balance sheet or foreign exchange interventions.”

However, he insists the intervention policy is correct: “We will enforce this minimum rate with the utmost determination and we are prepared to buy foreign currency in unlimited quantities if necessary.”

“Our profits have been and will be very volatile … because our balance sheet is four to five times as big as it was five years ago. Last year, we had a loss of SFr20bn, but this year we have a gain of SFr13bn,” he explains.

“I am convinced central banks should have sufficient capital for the long run. But, in the short run, central banks can bear heavy losses and even go into negative equity if necessary. In the case of the SNB there is no legal need to recapitalise the bank immediately. We will simply recapitalise the bank through future profits.”

Nor does the SNB plan to step back from another major policy front: banking reform. When the Swiss government launched tough proposals three years ago to raise banks’ capital standards, this sparked fury from some banks.

However, Mr Jordan argues that local banks are now supportive, partly because the Swiss rules are dramatically simpler and clearer than elsewhere. “The fact is that we simply cannot afford any more accidents like UBS,” he says.

In an effort to quell domestic criticism – and maintain its independence – the SNB is re-examining its internal rules on senior officials’ transactions. “The SNB rules are quite at par with rules practised by other central banks. But, given our experience, we may need to be more specific, so that in future it will be almost impossible to have any doubts about financial transactions of governing board members,” he says.

And then there is the matter of the next governor. Right now, Mr Jordan is considered a strong contender – but much could depend on how he performs in parliament this spring.


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