Switzerland Shows No Signs of Changing the SNB After Jordan’s Long Reign

(Bloomberg) — Switzerland could have the best chance in years to revamp its central bank right now, if the country actually wanted it.

The prospect of new management at the Swiss National Bank offers the government a rare opportunity to spruce up a famously conservative institution.

Read a German version. Subscribe to our German newsletter.

The impending exit of President Thomas Jordan, the nation’s preeminent unelected official, bookends more than a decade in which the central bank’s independence has at times been likened by critics to impunity. But the majority of Bern lawmakers, who could pressure the SNB to open up, are showing no appetite to act.  

“A reform will certainly not be proposed,” said Thomas Aeschi, a senior lawmaker with the Swiss People’s Party — the biggest group in Parliament. He says his colleagues trust the current management, want to protect the institution’s independence and will block any opposition push for reform. 

The sense of the central bank’s domestic infallibility reflects its accomplishments on price stability, and its role as the guardian of the Swiss franc, whose persistence as a globally significant currency bestows one of Europe’s smaller countries with an out-sized status.

“Jordan’s good track record with regard to inflation has shielded the SNB,” said Yvan Lengwiler, a professor at Basel University and one of a group of economists called the SNB Observatory. “The independence of a central bank presupposes that it’s being held accountable — and with the SNB, that’s not the case.”

Over the years, the institution has brushed off criticism for everything from negative interest rates — once the world’s lowest — to its management of hundreds of billions of dollars of currency reserves, to a refusal to publish minutes of policy decisions, and even allegations female staff were bullied and subject to pay discrimination. 

The SNB’s work culture drew scrutiny in 2020 when Swiss media reported that under Jordan’s leadership, the institution discriminated against women. An internal review found very few such instances, but the central bank’s record on hiring and promoting female staff doesn’t compare well with some global peers.

The departure last year of former policymaker Andrea Maechler, the only woman ever to have served as a Swiss rate setter, added to the impression of an institution out of step with the times. She left for what may be lower pay at the Bank of International Settlements after a younger man who spent his entire career at the SNB was tapped for its no. 2 post.

Asked for comment, the SNB sent a lengthy reply, rejecting any suggestions of a lack of accountability and transparency, ineffective oversight, not promoting women and alienating the global financial community with its 2015 decision to end the cap on the franc.

“The SNB’s existing governance has proven itself to be effective,” it said. “This has been demonstrated in particular in the experience of the past 15 years, in which the SNB has been able to fulfill its mandate optimally despite repeatedly facing exceptional external disruptions.”

The central bank, whose first quarterly policy decision of the year takes place this Thursday, has long insisted it’s happy to do things its own way.

Housed in a century-old, gray stone neoclassical building in the historic center of Zurich, the SNB has a three-member board structure that dates from 1907, for example, and the inflation range of 0%-to-2% that it targets has stayed intact since 2000.

Unlike global peers, its interest-rate setters don’t voice dissenting views in public — a practice common to Swiss official bodies, but one that has prompted concerns about a lack of in-house debate.

The federal National Bank Act stipulates that there be three members of the governing board, and increasing the number of rate setters would need a green light from lawmakers. It also requires the SNB to periodically inform the government, parliament, and the public about economic developments and regularly publish economic data. 

There’s no contention the SNB isn’t fulfilling its de jure requirements. Any decision to publish minutes would likely be taken by the rate-setters themselves.

For all its possible faults, the central bank can plausibly claim success in some of its core tasks. Inflation in Switzerland peaked at 3.5% in 2022, less than elsewhere, and Jordan cites long-run price stability as his proudest achievement.

Even the SNB’s decision in 2015 to abandon its cap on the franc, whose global market ructions didn’t win the country any friends, still won some plaudits. And while currency interventions have bloated the central bank’s balance sheet, they also shielded the economy. 

“This decision was a hard one, but a good one,” said Ipek Ozkardeskaya, an analyst at Swissquote Group Holdings SA in Geneva. “They’ve done a good job.”

Until now, the central bank has largely managed to dodge blame for Credit Suisse, which last year became the only globally systemic bank to have failed since the 2008-2009 crisis. The episode is a stain on Switzerland’s whole financial bureaucracy — not least since the economy is now dominated by a single bank — but Finma, the regulator, has taken more heat.

Lengwiler and colleagues at the SNB Observatory have been long-time critics. On March 4, just three days after Jordan announced his departure in September, they called for Switzerland to seize the day and drive change at the central bank.

Aside from saying that another outsider should be appointed to the three-member board, and criticizing the ineffectiveness of the Bank Council that oversees the SNB, they also recommended a host of reforms including revisiting how it takes monetary policy decisions, promoting more women, and instituting more periodic reviews of its activities. 

Whether and how far such changes would be warranted isn’t really a subject of debate in Switzerland, and in public, government officials are openly supportive of the SNB.

That may be the case behind the scenes too, though last year’s appointment of Federal Reserve official Antoine Martin to succeed Maechler could suggest otherwise. In that case, an outsider won out over internal candidates after a protracted process, against the backdrop of local media commentary about Jordan’s power within the central bank.

Rudolf Strahm, a former Social Democrat lawmaker who previously led Switzerland’s consumer price watchdog, reckons backing from the institution itself would be key for any change.

“It is unlikely that government and parliament will push through a reform of the national bank against its will,” he said. “The SNB itself must help.”

The selection of Jordan’s successor could be pivotal there. Given past practice, Vice President Martin Schlegel is the obvious front runner. Another viable contender is Maechler, who would be the nation’s first female central bank chief.

Whoever wins the job, Ozkardeskaya at Swissquote highlights the sense of caution that pervades Switzerland. While the SNB presidency succession is a notable shift, there’s not much else of an impetus to do anything, she reckons.

“Changes are hard to make in this country,” she said. “Swiss people like the status quo.”

©2024 Bloomberg L.P.