Technically speaking, this means we cannot determine an optimal commitment period for our investments. In point of fact, our investment horizon is usually relatively long-term, although it can be abruptly shortened in the event of a crisis. Finally, we also pay special attention to reputation risks when engaging in specific investments. One of  BIS Review 123/2006  1  the SNB's most important assets is its good reputation and its credibility. Damage to its reputation could also have a negative impact on monetary policy. Consequently, in cases of doubt, we avoid investment classes and instruments that may be expected to have a damaging impact on our reputation. We are also very risk-conscious when it comes to potential conflicts of interest. For instance, all staff engaged in practical investment activities are shielded from confidential monetary policy information. Effective risk management requires that all relevant risks be identified and assessed regularly, in a manner that is as unbiased as possible. Experience has shown that technical failure is seldom at the root of serious losses. The greatest losses result from a lack of risk consciousness, from a total failure even to recognise significant sources of risk. This danger exists when risk assessment is restricted exclusively to easily measurable quantitative risk variables, excluding areas such as processes or legal risks, which are referred to as 'operational risks'. For this reason, we also include operational risks in our assessment. However, while pursuing this broader route, we certainly do not neglect the regular quantitative measures for assessing financial investment risks.

The adjustments are our response to a challenge that all central banks with a significant level of currency reserves will probably have to face, sooner or later. The challenge is to safeguard the protective function of currency reserves while simultaneously making use of their earnings potential. In simple terms, what is needed is first, to structure the reserves in a way that ensures their availability when overcoming any kind of monetary crisis, and second, to invest them in a way that ensures they will generate the highest possible returns. Returns must be generated, if only for the simple reason that earnings are needed to finance the necessary growth in currency reserves. Furthermore, we owe it to the public to manage our currency reserves in a professional manner. The protective function of our currency reserves is fundamental. It is a direct corollary of the SNB mandate, in which monetary policy takes precedence over investment policy at all times. However, without questioning the primacy of monetary policy, there was still some leeway for greater management efficiency, particularly in the area of foreign exchange reserves. We have now exhausted a large portion of this room for manoeuvre. The first development that allowed us to take these steps was the 1997 revision of the National Bank Act. When the new Act came into force in 2004 the final statutory barriers with regard to permissible investment instruments were entirely removed. However, in investment, as in all walks of life, the old adage applies: "There is no free lunch".