Parliament dismisses bid to rein in central bank

People's Party parliamentarians Caspar Baader and Oskar Freysinger during the debate over the national bank Keystone

The Swiss National Bank has won a respite as parliament this week rejected attempts by the rightwing People’s Party to curtail its independence.

Both chambers held special debates in the aftermath of the resignation of bank chairman Philipp Hildebrand in January over controversial private currency dealings.

The affair led to a reform of internal regulations and prompted the president of the bank’s supervisory authority to abandon a bid for the renewal of his mandate.

The emotional atmosphere in the House of Representatives on Wednesday was in stark contrast with the sober tone of the debate in the Senate on Thursday.

Faced with an overwhelming opposition from the centre and the left, People’s Party parliamentarians used the opportunity to criticise the government and the central bank board.

Christoph Blocher, the rightwing party’s strongman and vocal opponent of the bank’s currency policy, lashed out against a perceived tangled web involving the political establishment.

“An institution is only credible if the leadership and the supervision are credible. But this is not the case as we have seen in the past weeks,” he said.

He also dismissed a reform of internal bank regulations, published at the beginning of the week, as toothless and full of loopholes.

Independence

However, two motions by the People’s Party aimed at restricting the bank’s s foreign currency deals and setting a minimum equity capital quota were rejected.

A proposal to launch a special parliamentary investigation was not even voted on. It could be tabled in the summer session.

Speakers of the centre-right Radicals and the centre-left Social Democrats stressed the independence of the national bank while deploring errors of judgment and insufficient regulations. They said they were awaiting a report by a parliamentary control committee investigating the handling of the affair by the government.

Senator Primin Bischof of the centre-right Christian Democratic Party said there was no need to amend the regulatory laws as an assessment had shown.

“But it is crucial that the regulators ensure the bank’s independence,” he said.

Several parliamentarians accused rightwing party members of undermining the central bank’s credibility and violating banking secrecy laws.

A preliminary criminal investigation into three people, including a bank employee, is underway. Blocher, who forwarded bank documents to the government, refused to take a stand on the issue.

Strong personality

Defending the central bank’s currency policy of setting a minimum exchange rate of SFr1.20 against the euro, Finance Minister Eveline Widmer-Schlumpf praised Hildebrand’s steadfastness against political pressure.

“Mr Hildebrand was probably a bit too strong for some political forces and he could not be influenced enough,” she said.

Widmer-Schlumpf told parliament that a task force was considering additional measures to complement a reform of the bank’s internal regulations.

She added that the cabinet would choose the new members of the central bank leadership and supervisory board as well as name a chairman to succeed Hildebrand in early April.

She rejected allegations the nominations should have been made earlier to avoid damage.

“The SNB is able to act. Fortunately for our country we have strong institution,” she said.

No damage

Manuel Ammann, professor of finance at St Gallen University, agrees that the affair has not endangered the monetary policy or caused any long-term reputational damage to the SNB.

“The bank does not depend on one individual. It is much more important to maintain a strong institution,” he said.

However, he queried why it is taking the authorities so long to name a new chairman of the directorate, as there appears to be little doubt about the likely successor – acting chairman Thomas Jordan.

Ammann added that parliament’s refusal to intervene in the bank’s monetary decisions is positive.

“The status quo allows the national bank to remain independent in its monetary policy.”

Internal regulations

The amended internal regulations for private investments of SNB board members include:

Limits on trading for the central bank’s three members of the directorate, their deputies and their families.

Management will have to hand control of their finances to independent asset managers for other investment options, including foreign exchange transactions.

The new rules, published on Monday, are considered the strictest in an international comparison.

Unchanged currency policy

The Swiss central bank on Thursday decided to maintain its three-month Libor rate close to zero, as expected.

The target range for the three-month Libor will remain unchanged at 0.0%-0.25%.

The bank said it is prepared to buy foreign currency in unlimited quantities and maintain liquidity on the money market at an exceptionally high level.

The central bank also said it will continue to enforce the minimum exchange rate of SFr1.20 against the euro.

The SNB spent SFr17.8 billion ($19.4 billion) in 2011 to stem what it called the currency’s overvaluation.