Philipp Hildebrand: SNB overview of financial market activity Introductory remarks by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the half-yearly media news conference, Berne, 16 June 2005. * 1. *  *  Developments in the financial markets  Financial market activity has been dominated in recent months by three key developments. Firstly, the US dollar started to strengthen. Secondly, long-term capital market yields declined further despite their already low levels. Thirdly, changes in credit risk premiums in the different debtor categories have been more mixed than in the preceding months. Despite the persistently high current account deficit in the US, the dollar has appreciated since the beginning of the year by roughly 12% against both the euro and the Swiss franc, and by approximately 7% against the yen. The dollar benefited in particular from the willingness of foreign investors to back US financial investments. In 2004, net purchases of US securities were dominated by the strong demand from certain Asian central banks. While such purchases have remained significant so far this year, private investors outside the US, too, have bought more US securities. This surge in demand is due in part to the fact that the markets continue to rate the growth prospects in the US better than those in Europe and Japan. The growing yield spread in favour of dollar investments as well as political uncertainty regarding the future development of the European Union have also contributed to the relative attractiveness of the greenback.
In principle, the National Bank does not invest in Swiss equities and corporate bonds, thus avoiding, from the outset, any potential conflicts of interest which could jeopardise the SNB’s independence. As a shareholder in Swiss companies, the Bank would risk being confronted with structural issues. It could also lead to a conflict between its monetary policy and investment policy goals if an interest rate hike by the SNB were to erode the domestic companies’ profits. Furthermore, such a move could have an adverse effect on prices should the SNB have to liquidate securities of Swiss businesses at short notice. And finally, it is conceivable that the National Bank could gain access to privileged financial market information through its activity in the area of system stability. This would make investing in the Swiss financial sector even more problematic. The influence of equity portfolios and corporate bonds on the National Bank’s risk profile is only moderate. The overall risk attached to assets – as measured by value-at-risk – has not changed greatly since the introduction of these investment options. Gold and exchange rates are still the biggest factors contributing to overall risk. Equities account for less than 5% of the total risk, while corporate bonds contribute only a negligible proportion. The current investment structure and the performance of the SNB’s assets are published online on a quarterly basis in an updated appendix to the Investment Policy Guidelines of the Swiss National Bank. 3.