thomas jordan : independence in research and monetary policy - a critical success factor for switzerland ceremonial address by mr thomas jordan, chairman of the governing board of the swiss national bank, to mark eth ( eidgenossische technische hochschule / federal institute of technology ) day 2023, zurich, 18 november 2023. * * * dear president of eth zurich dear rector of eth zurich dear president of the eth board dear guests it is a great honour and pleasure for me to speak to you on this year's eth day. many citizens may not know that the swiss federal institute of technology ( eth ) and the swiss national bank ( snb ) have a related'origin story '. the years after 1848 saw the founding of one important federal institution after another in the fledgling swiss confederation. and the question of where those institutions should be sited triggered a cantonal tug - of - war. the wrangling over the eth and the snb took a particularly long time to resolve. indeed, in the case of the snb, the situation was so delicate that, right up to the year 2004, a distinction was made between the institution's legal and administrative headquarters in berne, and the seat of its governing board in zurich. dear professor mesot, just over a year ago, during your welcome address marking the centenary of the snb's main building at borsenstrasse, you made a tongue - in - cheek reference to the'horse - trading surrounding federal institutions'and mentioned malicious rumours about the eth being something of a consolation prize for zurich. without wishing to dwell on the question of who got the biggest and best prizes, i think it is safe to say that zurich did not fare too badly with the eth and the snb. the city authorities recognised this fact by offering both institutions highly prestigious plots for their buildings. incidentally, zurich's business community argued vigorously at the time that the snb's governing board would become intellectually ossified if its seat were not in zurich. i am not aware of any such medical arguments being made with respect to the eth. and i don't intend to go out on a limb here and defend the scientific veracity of this diagnosis. their'origin story'is certainly not the only thing that the eth and the snb have in common. today, our two institutions are linked by important shared projects and close exchanges. for example

in normal times and in times of crisis. let me illustrate this point by a recapitulation of the developments surrounding the bank of england ’ s liquidity support to northern rock. northern rock had apparently been facing some institutional deposit outflows for a few days in september 2007. but the run on the bank only started when the emergency liquidity assistance of the bank of england became public, incidentally by way of a news report from the bbc. 17 the outflows stopped immediately after the u. k. treasury issued a blanket deposit guarantee. the northern rock case is a reminder of the importance that psychology plays in times of crises. as central banks, we need to consider carefully to what extent instant transparency with regard to liquidity operations may end up being counterproductive. let me add here that this is a very complex issue. i am not arguing that the evolution towards greater transparency in central banking should be reversed. indeed, perhaps we need greater ex ante transparency such as clearly stated conditions and eligibility criteria associated with central bank liquidity provisions. undoubtedly, ex post transparency about potential liquidity support measures must also be guaranteed. but in the midst of a crisis, it may well be beneficial and desirable for central banks to have some flexibility with regard to how they communicate regarding potential liquidity operations. 2. 2. implications of volatile risk premia for the conduct of monetary policy my second tentative lesson directly relates to the conduct of monetary policy. the recent market strains are unusual because confidence or rather the lack of confidence plays such an important role. clearly, there is a great deal of uncertainty regarding valuations of complex credit instruments. moreover and arguably more importantly, banks realize that they are facing or could face large contingent liabilities. they are therefore doing everything they can to protect their balance sheets. in essence, banks are hoarding liquidity and are reluctant to lend money in the interbank market beyond the very short term. as a result, a substantial and highly unusual risk premium has emerged in the interbank market. the risk premium in the interbank market has generally driven up the 3 - month libor which serves as the reference rate for the pricing of georgios chortareas, david stasavage, and gabriel sterne, 2002, “ does it pay to be transparent? international evidence from central bank forecasts ”, review of the federal reserve bank of st. louis, july / august, 99 - 117. frederic s. mishkin, 2004, “