Like most central banks the Swiss National Bank (SNB) is tasked with monetary stability. However, in the process it can inadvertently generate large profits and losses.
When monetary policy is expansionist and the resulting assets held by the SNB rise in value it can generate large profits as it has over the last few years. However, when the Swiss franc strengthens and asset values slump the bank can generate large losses as it did in the first half of 2022.
Over the first half of 2022, the SNB lost CHF 95.2 billion, the largest loss experienced in its more than 100 year history. Losses on assets denominated in foreign currencies reached CHF 97.4 billion.
Typically, such losses would be of little political interest. However, in Switzerland the central bank distributes some of its profits to cantonal governments. In 2021, the SNB and Switzerland’s finance department put in place to a turbocharged distribution agreement which allows for payments of up to CHF 6 billion a year.
The maximum CHF 6 billion amount is made up a base amount of CHF 2 billion, which is distributed if there is a net profit of at least CHF 2 billion. Added to this are four possible supplementary distributions of CHF 1 billion each, which are made if the bank’s net profit reaches the thresholds of CHF 10 billion, CHF 20 billion, CHF 30 billion and CHF 40 billion respectively.
However, unless the central bank’s fortunes improve over the second half of the year, distributions to the cantons for 2022 could be zero.