The annual yield – including the gold price movements – fluctuated very strongly between minus 25% and plus 20%. For the assessment of future developments in earnings, these figures are only of limited significance, however. The level and spread of our earnings are determined by the balance sheet total, the structure of the assets and the achievable financial market yields. Since these measures change over time, it is rather difficult to estimate the long-term earnings potential of the SNB. At the end of 2004, the National Bank’s assets amounted to CHF 118 billion. After distribution of the proceeds from the gold sales in spring 2005, the invested funds contracted by CHF 21 billion. Furthermore, higher profit distributions to the Swiss Confederation and the cantons should deplete the existing distribution reserve by 2012, thus decreasing our assets by a further CHF 10 billion as compared with the end of 2004. From today’s perspective, this leaves the SNB with assets in the region of CHF 85 billion. At present, the National Bank’s assets comprise 25% Swiss franc investments, 45% foreign exchange reserves and 30% gold. Foreign currency investments generate interest and dividend income. Given the globally low inflation rates, the nominal interest income is currently substantially lower than in the 1980s and 1990s. In addition, the valuation of bond and equity portfolios, foreign exchange positions and gold holdings at market prices result in valuation gains and losses. Meanwhile, the interest income on Swiss franc assets – primarily repos – is marginal.

Philipp Hildebrand: SNB’s performance against the background of financial market developments Introductory remarks by Dr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 15 December 2005. *  *  *  Developments in the financial markets The international financial markets have been dominated in recent months by four key developments. Long-term capital market yields have improved; the equity markets have, on the whole, exhibited very positive developments; the US dollar has continued the uptrend which set in at the beginning of this year; and the gold price has climbed sharply. The movements of the past few months in the international capital markets are largely attributable to economic developments and US monetary policy. Long-term dollar interest rates climbed significantly in the second half of the year thanks to the robust economic climate, the positive outlook in the US and the continued normalisation of monetary policy by the Federal Reserve. A rise in yields was also observed outside the US. The spread between US and European capital market rates, however, remained considerable. This is not least reflected in the differing business cycle phases of the US and European economies. Despite the improved economic outlook and higher oil prices, inflation expectations have, on the whole, remained moderate on both sides of the Atlantic. The three major economic areas – US, Japan and Europe – exhibited divergent equity market developments. While the US equity market largely maintained its sideways trend, the European indices firmed substantially.