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.
Risk measurement and management  The return on the SNB’s assets – particularly on currency reserves – fluctuates dramatically from year to year. The absolute loss can be considerable. While it is true that earnings fluctuations have been reduced by the scaling-back of dollar and gold holdings in recent years along with the improved diversification of currencies and investment categories, it is not possible to continue reducing risks ad infinitum. Hence, hedging the currency reserves’ dollar and gold risks to a high degree, for instance, is impracticable, as these reserves would then no longer serve their intended purpose. Professional risk measurement and management is thus crucial for the SNB. The risks attached to the National Bank’s assets are primarily assessed using the value-at-risk (VaR) method. This widely used risk indicator quantifies the level of loss that will most probably not be exceeded within a specific period of time. The SNB calculates the VaR based on a 95% probability and a time horizon of one year. Value-at-risk analyses are undertaken both for individual portfolios and the total assets. The current VaR for the total assets of approximately CHF 100 billion amounts to roughly CHF 4.5 billion. A value-at-risk analysis gives no indication of how much could potentially be lost beyond the specified level of 95%. Furthermore, it is based on current risk and correlation structures that are not necessarily an accurate reflection of future risks. This is particularly the case at the moment – at a time when market volatility is low by historical standards.