The Swiss National Bank (SNB) is facing new challenges as it struggles to combat the appreciation of the Swiss franc. Despite successfully taming inflation, SNB President Thomas Jordan now finds himself lacking the necessary ammunition to fight against the currency’s strengthening.

In a recent speech titled “Does the Swiss National Bank Need More Capital?” Jordan emphasized the importance of taking all necessary precautions to restore the bank’s balance sheet to a normal state with sufficient capital. However, the SNB’s capital position has deteriorated significantly over the years, with its capital ratio currently standing at a meager 8 percent, compared to the desired level of 16 percent.

The potential danger for the SNB lies in the possibility of a sudden market downturn. If this were to occur, it is realistic to expect the bank’s capital to fall below zero. While the SNB would still be able to function with negative capital thanks to its ability to print money, its credibility would be compromised.

Once regarded as heroes for their swift intervention in times of financial market crises, central banks are now being urged to exercise more modesty. The SNB’s primary mandate of combating inflation has been met with mixed success, leading to a reevaluation of the role and power of central banks.

For Switzerland, stable prices and a strong franc are key to its prosperity, and therefore, a well-capitalized and independent SNB is crucial. The bank’s efforts to restore its capital position to a normal state are seen as essential for maintaining stability and safeguarding the country’s economic well-being.

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Geography	Europe
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Companies	NZZ am Sonntag, SNB, Institut für Schweizer Wirtschaftspolitik
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