The Swiss National Bank (SNB) has announced that it is expecting to incur an annual loss of 132 billion francs ($143 billion), marking the biggest-ever loss in its 116-year history. This is more than five times the previous record loss of 23 billion francs in 2015, and represents a significant blow to the central bank’s financial stability.
According to the SNB, the largest part of the loss, 131 billion francs, stems from collapsed valuations of foreign currency positions. The bank had built up a significant portfolio of foreign currencies in an effort to stabilize the value of the Swiss franc, which has traditionally been seen as a safe-haven currency. However, the economic turmoil caused by the COVID-19 pandemic led to a rapid depreciation in the value of these currencies, resulting in the large loss for the SNB.
The SNB’s loss is also a reflection of the broader economic challenges facing Switzerland, which has seen its GDP contract significantly in recent months. The country’s reliance on exports and tourism has made it particularly vulnerable to the impacts of the pandemic, and it has struggled to recover as other countries have begun to emerge from the crisis.
Despite the scale of the loss, the SNB has sought to reassure the public that it remains well capitalized and able to fulfill its mandate. The bank has pointed out that it has a solid capital base, and that it has the ability to generate profits in the long-term. It has also stressed that its loss will not have any direct impact on the stability of the Swiss financial system, or on the country’s economy more generally.
However, the loss will inevitably raise questions about the SNB’s ability to navigate the current economic challenges and maintain its position as a leading central bank. Some analysts have argued that the bank may need to reconsider its approach to foreign currency interventions, and that it may need to adopt a more flexible approach in the future.
Despite these challenges, the SNB has vowed to continue its efforts to stabilize the Swiss franc and support the country’s economy. It has indicated that it will continue to use all of the tools at its disposal to achieve these goals, and that it remains committed to its mandate of providing a stable and secure financial system for the benefit of all Swiss citizens.
The news of the SNB’s record loss is a sobering reminder of the economic challenges facing Switzerland, and of the need for the bank to adapt and innovate in the face of a rapidly changing global economy.