The Swiss National Bank (SNB) conducts the country's monetary policy as an independent central bank and is responsible for the issuing of Swiss franc banknotes. It is obliged by Constitution and statute to act in accordance with the interests of the country as a whole. Its primary goal is to ensure price stability, while taking due account of economic developments.
The SNB is also referred to as the Banque Nationale Suisse in French, Schweizerische Nationalbank in German, Banca Naziunala Svizra in Romansh, and Banca Nazionale Svizzera in Italian.
Roles and Functions of the National Bank of Switzerland
The Swiss National Bank’s primary function is to ensure price stability within the country and to create an economic environment conducive to optimal economic growth and development for Switzerland.
Other roles of the SNB include:
- Note issuance - the SNB produces and distributes Swiss banknotes that serve as legal tender both locally and internationally. The bank is also tasked with coin distribution.
- Implementation of monetary policy - the bank implements its monetary policy by setting interest rates, as well as by actively participating in the forex trading market to keep the Swiss franc rate closer to its monetary environment targets.
- Asset management - the bank manages Switzerland’s gold and forex reserves.
- Cashless payments - facilitating the settlement of cashless transactions through the Swiss Interbank Clearing (SIC).
- Banker of the confederation - the SNB is the bank of the Swiss Confederation, and it handles the issuance and custody of securities, as well as forex transactions.
Why Is the Swiss Bank So Special?
The main benefits of Swiss bank accounts include low levels of financial risk and high levels of privacy.
The country has a long history of banking secrecy and client confidentiality reaching back to the early 1700s. Moreover, in 1934 Switzerland passed the Swiss Banking Law which made it criminal for Swiss banks to disclose the name of an account holder. These protections are the primary differentiator that make Swiss bank accounts so popular with banking customers around the world.
The Structure of SNB
The Swiss Bank has two head offices in Berne and Zurich. There are six representative branches in some cities, as well as 14 agencies operated by cantonal banks around the country.
The operations of the SNB are overseen by a Bank Council that consists of 11 members; six of them are appointed by the Federal Council (including the President and Vice President), and five are appointed by shareholders.
Moreover, the SNB has 3 departments with distinct responsibilities that help it to deliver on its mandate:
- Department I - covering Economic Affairs, International Affairs, Legal Services, Communications and Statistics.
- Department II - covering Finance, Risk Management, Financial Stability, Cash and Security.
- Department III - covering Money Market and Foreign Exchange, Asset Management, Banking Operations and Information Technology.
The Importance of Swiss Bank in Fundamental Analysis
Like most national banks, such as the Bank of England (BoE), Bank of Canada (BoC) and Bank of Japan (BoJ), the SNB is an active participant in the forex market, and regularly changes interest rates to stay within its target inflation of less than 2%.
Typically, the SNB will hike rates if inflation goes above 2%, which usually results in a stronger Swiss franc (CHF) as investors seek to take advantage of a higher-yielding currency. But the impact on stocks and bonds will be negative as borrowing becomes expensive to both businesses and consumers. Nonetheless, the SNB always strives to strike a sound balance between inflation and economic growth. This means that in some instances, the bank may keep interest rates low to stimulate the economy.
A Brief History of the Swiss National Bank
The Swiss National Bank started operations in 1907, courtesy of the Swiss Federal Act on the Swiss National Bank that was passed in January 1906. The bank has since expanded its scope of services, as well as consolidated its autonomy and independence.
In its early days the SNB would occasionally receive guidance on policy matters from the Federal Council of Switzerland, and was instructed to produce lower denomination banknotes during World War I from 1914-1917. The Federal Council devalued the Swiss franc in 1936, and a reserve managed by the SNB was created to be used in any future emergence.
Switzerland has always been a financial safe haven for investors. During the 1970s global currency crisis, the country saw a huge increase in forex inflows. This led the SNB to implement various policies to protect the Swiss franc, as well as to regulate the domestic credit market.
For example, foreign deposits no longer yielded interest and minimum bank reserves were instituted. In 1994, the Swiss National Bank was pronounced as a joint-stock company that serves under the administration and supervision of the Swiss Confederation. It received full autonomy and independence in May 2004, following the institution of Article 99 of the Federal Constitution.
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