Niklaus Blattner: Review of the Swiss economy Introductory remarks by Prof Dr Niklaus Blattner, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 13 December 2002. *  *  *  In conducting monetary policy, the Swiss National Bank (SNB) must be able to rely on a healthy banking system. We can consider only efficient and solvent banks as counterparties. Monetary policy can only be implemented effectively in a system made up of such banks. Furthermore, only efficient and solvent banks (including the non-bank Postfinance and the infrastructures for the settlement of payments and securities) can maintain efficient and secure payment transactions. The current bill for a comprehensive revision of the National Bank Law took this realisation into account. Overseeing the payment and securities settlement system is only one of the central bank functions spelled out in the Law. What is new, in particular, is the explicit requirement that the National Bank shall contribute to the stability of the financial system. By taking organisational measures, we already created better preconditions for fulfilling the expanded mandate in 2001. The Law and the organisation are moving in the direction taken by other central banks worldwide ever since they have increasingly identified the stability of the financial system as a necessary precondition for pursuing an effective monetary policy. In accordance with the revised Law, our close cooperation with the Swiss Federal Banking Commission (SFBC) will be further expanded. The responsibilities will remain clearly delineated, however.

The National Bank incurs risks on its investments that cannot be hedged based on monetary policy concerns. Losses from gold and foreign currencies in particular can be significant. An adequate volume of reserves allows the National Bank to bear these risks, especially since such fluctuating values tend to correct themselves over the long term. Greater diversification of both the currencies and the investment instruments can bring about the necessary growth of monetary reserves. Diversification effects permit investments in higher-yielding and - from an individual perspective - riskier investments such as equities and corporate bonds without substantially increasing the overall risk. The return potential of monetary reserves depends on the liquidity and security requirements of the investments in terms of monetary policy considerations. Pursuing an efficient investment policy for the National Bank means achieving a return potential that is as high as possible within the existing restrictions. Under the new Act, the National Bank will pursue a broader diversification of its investments and, in particular, also invest in equities and corporate bonds. Because of the National Bank’s special position as a central bank, the exposure to equities and corporate bonds is subject to some specific considerations: first, a conflict of interest may arise  BIS Review 39/2004  1  between monetary policy and investment policy. For instance, interest rate hikes by the National Bank can have a negative impact on a company’s profits. Second, owing to its responsibilities in the area of system stability, the National Bank has insider information in the financial sector.