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SNB Head Warns of Political Fallout After Crisis

The independence of the Swiss National Bank risks being compromised due to political pressure following the departure of Philipp Hildebrand as chairman, the central bank’s acting chairman has warned.

Swiss Bank
Fabrice Coffrini | AFP | Getty Images
Swiss Bank

Mr. Hildebrand resigned last month after it emerged that his wife had conducted controversial foreign exchange tradesshortly before the SNB intervened to weaken the franc last September.

The bank has come under domestic political pressure over the potential cost of interventions, Thomas Jordan, the acting chairman, told the Financial Times.

Mr. Jordan, who is also the bank’s vice-chairman, however insisted that the central bank’s policy operations remained stable and it was committed to defend the ceiling it had set for the franc .

“There should be absolutely no doubt whatsoever about the capability of the SNB to maintain the minimum exchange rate,” he said. “We are prepared to buy foreign currency in unlimited quantities if necessary.”

The franc, widely seen as a haven for investors from the troubled euro zone, has faced the first real test of the central bank’s resolve following the move in September to prevent its currency getting stronger by effectively pegging the franc to the euro.

The Swiss currency has edged closer to the minimum exchange rate set by the SNB of 1.20 Swiss francs against the euro in recent days. Currency traders are now on high alert for a fresh round of intervention after the franc hit its strongest level against the euro in nearly five months, which reached 1.2028 Swiss francs this week.

In the interview, conducted last week, Mr. Jordan conceded the current situation was “challenging” for the SNB. “We feel the pressure on the Swiss franc because of the euro zone crisis and now we have a second front—political pressure,” he said.

“There are a couple of investigations and reports being done on the influence of the government on the bank ... which could potentially limit the independence of the SNB.”

Options being considered by the Swiss government included limiting the size of the foreign exchange interventions the SNB is able to make, Mr. Jordan said.

Analysts say a second round of intervention could be more costly for the Swiss central bank, which is estimated to have spent 7 billion Swiss francs when it first stepped into the markets in September.

Valentin Marinov, foreign exchange strategist at Citi, predicts that the SNB will have to spend twice that amount if it intervenes in the coming days, due to the build-up of positions close to the ceiling.

Demand for options that protect investors against the possibility the SNB may not hold the ceiling has shot up this week, with the market now pricing in a 30 percent risk the franc will break the ceiling in the next month.

“That’s pretty sizeable and it’s not surprising as investors are pretty afraid,” said Sebastien Galy at Société Générale. “The SNB’s hand is being forced and it will likely be fairly brutal.”

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