Swiss central bank faces calls for governance reforms

Zurich — The Swiss National Bank (SNB) is facing calls for an overhaul in its governance, with critics saying too much power lies in the hands of its chair Thomas Jordan and that more transparency is needed.

The SNB played a big role in the state-sponsored rescue of Credit Suisse, making Sf250bn ($280bn) of liquidity available to ease its takeover by UBS.

In the wider economy, its monetary policy has led to it building up a balance sheet of nearly Sf900bn — equivalent to 113% of Swiss economic output.

All that has raised concerns about the concentration of power in the SNB’s three-person governing board overseen by Jordan, smaller than the policy-making teams of other top central banks and one which retains a high level of discretion over its decision-making process.

Jordan, who has led the board since 2012, has stamped his authority on the central bank during a period where it has upended currency markets by scrapping the Swiss franc’s peg, and introduced the world’s lowest interest rates before joining others in tightening policy as inflationary pressures grew.

The governance concerns have been brought centre-stage by the search for a new member to replace Andrea Maechler, the first woman to serve on the SNB’s governing board.

She leaves at the end of June and calls are emerging for her to be succeeded by an independent, female candidate.

“With the current composition of the governing board of the Swiss National Bank I am worried there is a strong concentration of power in very few hands and a too powerful role of the chairman,” said Celine Widmer, an MP for the left-leaning Social Democrats who has raised questions about the selection process to replace Maechler.

Widmer also advocated the expansion of the governing council from three members to five or seven and noted more generally there had been a “lack of questioning” about the role of the SNB in the rescue of Credit Suisse and what role it will play in banking regulation in future.

Her views were echoed by members of other parties.

“Probably extending the governing council from three to five members is a good idea,” said Christian Luscher, an MP of the centre-right Free Liberals and a former president of the Swiss parliament’s economy committee.

Green Party MP Gerhard Andrey, a current member of parliament’s finance committee, said the SNB’s current structure was not “much different than it was 100 years ago”.

“Although the SNB has done a pretty good job to stabilise prices and inflation ... it needs to evolve and have more diversity to tackle the upcoming challenges,” Andrey said.

The Swiss parliament would have to approve any expansion of the SNB’s board.

Closed doors

While past European Central Bank (ECB) chiefs such as Mario Draghi have faced criticism for forcing through their views, current boss Christine Lagarde has said her role is to forge consensus among the Eurozone’s 26 policymakers.

ECB presidents go before the European parliament regularly to explain the bank’s policies and published accounts of its internal discussions acknowledge when there have been disagreements, albeit without naming policymakers.

The Bank of England also publishes detailed minutes of its monetary
policy discussions and reveals the spread of views on rate decisions. Its policymakers face sometimes aggressive questioning by parliamentary committees.

Although the SNB meets regularly with government ministers and committees, this takes place behind closed doors and the bank does not publish minutes of its decisions.

The bank, which holds its shareholders meeting on Friday, said it saw “no advantage” in expanding its governing council.

“From the SNB’s point of view, this organisational form has proven its worth, promoting intensive and efficient discussions with rapid decision-making,” the SNB said.

Still, the SNB Observatory, a group of economists set up to stimulate a debate about the SNB, has suggested that the small committee meant the central bank was susceptible to group think.

Yvan Lengwiler, from the University of Basel, said too many SNB officials spent their entire careers at the central bank, a particular risk in the cases of Jordan and his deputy Martin Schlegel, who have been there all their working lives.

“They are both highly competent, but it is a bubble, they have no outside experience,” Lengwiler said. “There really needs to be term limits.”

Such views are not shared universally. Thomas Stucki, a former head of asset management at the SNB, said it was typical for central bank chair to dominate decision-making.

“There is no doubt that Thomas Jordan is a strong personality, but he is the chairman, the one who carries the can for the SNB's decisions,” said Stucki, who is now chief investment officer at St Galler Kantonalbank.

His views were echoed by Hannes Germann, an MP with the right-wing Swiss People’s Party, who saw no reason for an overhaul. He argued that some of the reforms being aired could backfire, making the bank more susceptible to outside influence and less efficient in maintaining price stability.

“An expansion of the board contains the risk of ... less independence of the board versus politics,” he said. “Less independent central banks usually lead to higher inflation rates in the long run”.

Reuters