Ladies and gentlemen, allow me to illustrate the elements I have just described and the logic behind our profit appropriation using this table (Slide 4). In 2020, the SNB recorded a profit of nearly CHF 21 billion. We first made an allocation of around CHF 8 billion to the provisions for currency reserves. We did so because strengthening the balance sheet takes precedence over the distribution of profits, as I mentioned before. The remaining amount of the annual result together with the available distribution reserve (i.e. the profit carried forward from the 2019 financial year) gives a net profit for 2020 of just under CHF 97 billion. This amount is then used for the payment of a dividend and the distribution to the Confederation and the cantons. The level of the distribution is determined by the new agreement – which I will come to in due course – and amounts to CHF 6 billion for the 2020 financial year. The not quite CHF 91 billion remaining forms the profit carried forward to the next year, in other words the new distribution reserve. This is how we implement both statutory requirements, namely the precedence of building provisions over making distributions, and the smoothing of distribution payments. New agreement on the SNB’s distribution of profits This brings me to the new profit distribution agreement concluded between the Federal Department of Finance (FDF) and the SNB at the beginning of this year.
With a view to ensuring that the ratio between the desired level of equity capital and the currency reserves can be increased again somewhat, the SNB recently decided to adjust its rule on allocations to the provisions for the coming years. For the financial years through to 2025, the annual allocation to the provisions will be at least 10% of the preceding year’s provisions, compared with 8% per annum previously. A persistent erosion of the SNB’s equity base would undermine the credibility of our institution over the long term and would fuel doubts regarding our ability to act. 1 Ongoing allocations to the provisions are therefore essential for the SNB. The amount remaining after the allocation to provisions is referred to as the distributable profit. However, since a profit in any given year can be followed by a loss the next, the SNB does not pay out all of the distributable profit at once. Instead we seek to smooth the distributions to ensure that they are less dependent on variable annual results. This smoothing was introduced to facilitate better planning for the Confederation and the cantons. However, maintaining distributions at a steady level is also of pivotal importance for the SNB. The reason for this is an underlying asymmetry: the SNB can distribute profits, but it cannot reclaim any money if it makes a loss. If the SNB were to always distribute its profits in their 1  For more information on the importance of a central bank’s equity, cf. inter alia Jordan, Thomas J.