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2010
103rd Annual Report
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Goals and responsibilities of the Swiss National Bank
Mandate
The Swiss National Bank conducts the countrys monetary policy as
an independent central bank. It is obliged by Constitution and statute
to act in accordance with the interests o the country as a whole. Its primary
goal is to ensure price stability, while taking due account o economic
developments. In so doing, it creates an appropriate environment or
economic growth.
Price stabilityPrice stability is an important condition or growth and prosperity.
Ination and deation, by contrast, impair economic activity. They complicate
decision-making by consumers and producers, lead to misallocations o
labour and capital, result in income and asset redistributions, and put the
economically weak at a disadvantage.
The SNB equates price stability with a rise in the national consumer
price index o less than 2% per annum. Deation i. e. a protracted decline
in price levels is considered to be equally detrimental to price stability.
The SNB takes its monetary policy decisions on the basis o an ination
orecast and implements them by steering the three-month Libor or Swiss
ranc investments.Supplying the money market with liquidity
The SNB provides the Swiss ranc money market with liquidity by
inuencing the interest rate level in the money market.
Cash supply and distribution
The SNB is entrusted with the note-issuing privilege. It supplies the
economy with banknotes that meet high standards with respect to quality
and security. It is also charged by the Swiss Conederation with the task o
coin distribution.
Cashless payment transactions
In the feld o cashless payment transactions, the SNB provides
services or payments between banks. These are settled in the Swiss InterbankClearing (SIC) system via sight deposit accounts held with the SNB.
Investment o currency reserves
The SNB manages the currency reserves. These engender confdence
in the Swiss ranc, help to prevent and overcome crises, and may be utilised
or interventions in the oreign exchange market.
Financial system stability
The SNB contributes to the stability o the fnancial system. Within the
context o this task, it analyses sources o risk to the fnancial system,
oversees systemically important payment and securities settlement systems
and helps to promote an operational environment or the fnancial sector.
International monetary cooperationTogether with the ederal authorities, the SNB participates in
international monetary cooperation and provides technical assistance.
Banker to the Conederation
The SNB acts as banker to the Conederation. It processes payments
on behal o the Conederation, issues money market debt register claims
and bonds, handles the saekeeping o securities and carries out money market
and oreign exchange transactions.
Statistics
The SNB compiles statistical data on banks and fnancial markets,
the balance o payments, direct investment, the international investment
position and the Swiss fnancial accounts.
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Swiss National Bank
103rd Annual Report 2010
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Preface
Ladies and Gentlemen
In accordance with art. 7 para. 2 o the National Bank Act (NBA), the
Swiss National Bank (SNB) submits an annual accountability report to the
Federal Assembly in which it outlines how it has ulflled its mandate as defned
in art. 5 NBA. Furthermore, pursuant to art. 7 para. 1 NBA, the SNB submits
its fnancial report to the Federal Council or approval, beore presenting it,
together with the Audit Boards reports, to the General Meeting o Shareholdersor approval and attention.
The frst part o the SNBs 103rd Annual Reportcomprises the account-
ability report to the Federal Assembly (pp. 994). This is submitted to the
General Meeting o Shareholders or inormation purposes only and does not
require approval. It describes the economic and monetary developments in
2010 and explains in detail how the SNB has ulflled its statutory mandate
in particular the conduct o monetary policy and the SNBs contribution to the
stability o the fnancial system. A summary o the accountability report is
provided on pp. 1013.
The global economy recovered in 2010 ater the sharp downturn in
2008 and 2009. In Switzerland, GDP was, in act, back to pre-crisis levels bythe second hal o the year. However, considerable uncertainty about the sus-
tainability o the upturn remained throughout the year and downside risks
were prevalent. The fnancial market recovery, in particular, suered a setback
in spring 2010 due to the escalating sovereign debt crisis in Europe. The Euro-
pean authorities managed to stabilise the situation temporarily by means o new
exceptional measures without, however, bringing about a sustained solution.
The high level o public debt in numerous advanced economies as a result o
the crisis remains one o the major economic challenges o the coming years.
Under these circumstances, the SNB maintained its expansionary mon-
etary policy in 2010. At the end o 2009, the threat o deation had receded to
the extent that a certain appreciation o the Swiss ranc could be allowedwithout price stability being compromised. Accordingly, in the frst hal o 2010,
the SNB rerained rom taking decisive action against every appreciation in the
Swiss ranc, only doing so in the event o an excessive appreciation. This policy
required large-scale purchases o oreign exchange in spring 2010 when the
Swiss ranc came under considerable upward pressure in connection with the
escalating European sovereign debt crisis. The SNB considered that a rapid
and excessive appreciation o the Swiss ranc against the euro at that time
would have placed the Swiss economy under such a strain that the threat o
a deationary trend would again have come to the ore. The SNB did not want
to run this risk. In the second hal o 2010, the economic recovery in Switzer-
land and abroad consolidated to such an extent that the threat o deation inSwitzerland largely disappeared and the SNB was able to rerain rom carrying
out any urther interventions on the oreign exchange market.
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Swiss ranc liquidity in the banking system rose sharply in 2010 due
to the SNBs extensive oreign exchange purchases. As a result, the banking
system was in a position o excess liquidity vis--vis the SNB. The SNB there-
ore adapted its procedure or implementing monetary policy and steering
the three-month Libor. Under the new procedure, liquidity-absorbing repo
transactions and SNB Bill issues replaced liquidity-providing money market
operations in mid-2010. This has enabled the SNB to absorb a large part o
the excess liquidity.
The second part o theAnnual Reportcomprises the fnancial report orthe attention o the Federal Council and the General Meeting o Shareholders
(pp. 97193). It includes the business report, which deals with organisational
and operational developments at the SNB as well as its fnancial results. The
fnancial report also includes the annual fnancial statements o the SNB
(parent company), containing the balance sheet, income statement and notes
(pp. 121162), the fnancial inormation on the stabilisation und (pp. 163
172), and the consolidated fnancial statements (pp. 173190), as required
under Swiss law.
In 2010, the annual fnancial statements o the SNB (parent company)
closed with a loss o CHF 20.8 billion, ollowing a proft o CHF 10.0 billion in
the previous year. Distribution o unds by the SNB is based on the result othe parent company.
Monetary policy, whose primary objective is price stability, must be
conducted independently o balance sheet considerations. The oreign exchange
purchases eected in the frst hal o 2010 in pursuit o this objective led to
a strong increase in oreign currency investments. The appreciation o the
Swiss ranc, which was particularly pronounced in the last weeks and days o
the 2010 fnancial year, resulted in a loss o around CHF 26.5 billion on oreign
currency positions.
Bearing in mind these exceptional circumstances, the SNB has decided
to set the allocation to the provisions or currency reserves or the past fnan-
cial year at CHF 0.7 billion instead o CHF 4 billion. This will enable the distri-bution o CHF 2.5 billion or the 2010 fnancial year to the Conederation and
the cantons, and the payment o CHF 1.5 million in dividends, to be carried
out as planned. Despite the reduced allocation to provisions or currency
reserves, the SNBs capital base remains strong.
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This procedure provides the Conederation and the cantons with time to
adjust to the new situation o a negative distribution reserve. For the SNB can-
not exclude the possibility that proft distribution may have to be suspended or
a certain period, and that uture distribution amounts may need to be smaller.
The SNBs result has always been largely dependent on developments in the
gold, oreign exchange and capital markets, and this will remain so in the
oreseeable uture.
The stabilisation und shows a proft o CHF 2.6 billion or the 2010
fnancial year. Within one year, the SNBs loan to the stabilisation und hasbeen paid down rom just under CHF 21 billion to around CHF 12 billion.
As a result o the good perormance o the stabilisation und, the con-
solidated annual loss amounted to CHF 19.2 billion.
We wish to thank the bank authorities and our employees or their
hard work and valuable support over the past year.
Berne and Zurich, 25 February 2011
Hansueli Raggenbass Philipp M. Hildebrand
President o the Bank Council Chairman o the Governing Board
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Contents
Preface
9 Accountability report
10 Summary
14 1 Monetary policy
41 2 Supplying the money market with liquidity
56 3 Ensuring the supply and distribution o cash
59 4 Facilitating and securing cashless payments
63 5 Asset management
71 6 Contribution to fnancial system stability
84 7 Involvement in international monetary cooperation
91 8 Banking services or the Conederation
92 9 Statistics
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97 Financial report
99 Business report100 1 Legal ramework
101 2 Organisation and tasks
103 3 Corporate governance
108 4 Resources
111 5 Changes in bank bodies and management
112 6 Business perormance
121 Annual nancial statements of the Swiss National Bank(parent company)
122 1 Parent company balance sheet as at 31 December 2010
124 2 Parent company income statement and appropriation o proft or 2010
125 3 Changes in equity (parent company)
126 4 Notes to the annual fnancial statements o the parent company
as at 31 December 2010
161 5 Report o the Audit Board or the General Meeting o Shareholders
163 Financial information on the stabilisation fund
164 1 Introduction165 2 Stabilisation und balance sheet and income statement
167 3 Notes to the fnancial inormation on the stabilisation und
as at 31 December 2010
173 Consolidated nancial statements174 1 Consolidated balance sheet as at 31 December 2010
177 2 Consolidated income statement or 2010
178 3 Changes in equity (consolidated level)
179 4 Notes to the consolidated fnancial statements as at 31 December 2010
189 5 Report o the Audit Board or the General Meeting o Shareholders
191 Proposals of the Bank Council193 Proposals o the Bank Council to the General Meeting o Shareholders
195 Selected information
196 1 Chronicle o monetary events in 2010
198 2 Bank supervisory and management bodies, Regional Economic Councils
202 3 Organisational chart
204 4 Publications207 5 Addresses
208 6 Rounding conventions and abbreviations
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8SNB
Contents
Accountabilityreport
10 Summary
14 1 Monetarypolicy
14 1.1Background
16 1.2Monetarypolicystrategy
18 1.3Internationaleconomicdevelopments 22 1.4EconomicdevelopmentsinSwitzerland
32 1.5Monetarypolicydecisions
41 2 Supplyingthemoneymarketwithliquidity
41 2.1Background
42 2.2Monetarypolicyinstruments
46 2.3Liquiditymanagementin2010
52 2.4Emergencyliquidityassistance
52 2.5Minimumreserves
53 2.6CollateraleligibleforSNBrepos
55 2.7RepoauctionsinUSdollars
55 2.8SNBUSDBills 56 3 Ensuringthesupplyanddistributionofcash
56 3.1Background
56 3.2Ofcesandagencies
57 3.3Banknotes
58 3.4Coins
59 4 Facilitatingandsecuringcashlesspayments
59 4.1Background
60 4.2Cashlesspaymentsin2010
62 4.3TARGET2-Securities
63 5 Assetmanagement
63 5.1Background 64 5.2Investmentandriskcontrolprocess
65 5.3Changesinandbreakdownofassets
68 5.4Riskprole
70 5.5Investmentperformance
71 6 Contributiontonancialsystemstability
71 6.1Background
71 6.2Mainactivitiesin2010
72 6.3Monitoringthenancialsystem
74 6.4Measurestostrengthennancialstability
76 6.5Oversightofpaymentandsecuritiessettlementsystems
79 6.6Internationalcooperationonnancialmarketregulation 80 6.7Stabilisationfund
84 7 Involvementininternationalmonetarycooperation
84 7.1Background
84 7.2InternationalMonetaryFund
88 7.3BankforInternationalSettlements
89 7.4OECD
90 7.5Technicalassistance
91 8 BankingservicesfortheConfederation
92 9 Statistics
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Accountabilityreport
9SNB
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SNB 10 Accountabilityreport
On10March2011,theGoverningBoardoftheSwissNationalBank
(SNB)submitteditsaccountabilityreportfor2010totheFederalAssemblyin
accordancewithart.7para.2oftheNationalBankAct(NBA).Thereportis
submittedtotheFederalCouncilandtheGeneralMeetingofShareholdersfor
informationpurposesonlyanddoesnotrequiretheirapproval.
Summary(1)TheSNBpursues amonetarypolicyservingtheinterestsofthe
countryasawhole.Itmustensurepricestability,whiletakingdueaccount
ofeconomic developments. Monetarypolicy affectsproduction and prices
withaconsiderabletimelag.Consequently,itisbasedoninationforecasts
ratherthancurrentination.TheSNBsmonetarypolicystrategyconsistsof
threeelements:adenitionofpricestability,amedium-termconditionalina-
tionforecast,and,atoperationallevel,atargetrangeforareferenceinterest
rate,whichistheLiborforthree-monthinvestmentsinSwissfrancs.
In2010,theSNBmaintaineditsexpansionarymonetarypolicy.It
leftthetargetrangeforthethree-monthLiborunchangedat0.00.75%withtheintentionofkeepingtheLiborwithinthelowerpartoftherange,at
around0.25%.
Giventheseveredownturnintheglobaleconomy,aseriousthreatof
adeationarytrendhademergedinSwitzerlandatthebeginningof2009.In
ordertopreventthisthreatfrommaterialisingviaappreciationoftheSwiss
franc,theSNBactedagainstanyappreciationintheSwissfrancwithrespect
totheeurofromMarch2009on,interveningintheforeignexchangemarket
toachievethisgoal.
Bytheendof2009,theSNBconsideredthat,giventhecontinuing
recoveryintheeconomy,thethreatofdeationhadreceded.Consequently,
acertainappreciationintheSwissfranccouldbeallowedwithoutpricesta-bilitybeingcompromised.InDecember,theSNBthereforeannouncedthatit
wouldact decisivelyonlyinthe eventof anexcessive appreciationofthe
Swissfranc.Thispolicywasmaintainedthroughoutthersthalfof2010.
Inspring2010,withtheescalationofthesovereigndebtcrisisin
Europe,majortensionsaroseonnancialmarkets.Thisenvironmentresulted
ina renewed ightto safe investments,and therewas substantial upward
pressureontheSwissfranc.TheSNBconsideredthat,atthattime,arapid
andexcessiveappreciationoftheSwissfrancagainsttheeurowouldhave
placedtheSwisseconomyundersuchastrainthatthethreatofadeationary
trendwouldhavecometothefore.Itwasnotpreparedtotakethisriskand
thereforedecidedtoacquirelargequantitiesofforeigncurrency.
Monetarypolicy
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SNB 11 Accountabilityreport
Towardsthemiddleoftheyear,therecoveryoftheSwissandglobal
economyhadconsolidatedtosuchanextentthatthethreatofdeationin
Switzerlandhadlargelydisappeared.InJune,theSNBthereforeconsidered
thatanappreciationoftheSwissfrancwasnolongersuchathreattoprice
stabilityandtheeconomyasithadbeenpreviously.Thusitrefrainedfrom
carryingoutanyfurtherinterventionsontheforeignexchangemarketinthe
secondhalfoftheyear.
With its prudent policy, the SNB contributed to the recovery of
theSwisseconomy.Bythethirdquarter,GDPhadreachedthesamelevelasbeforethecrisis.Overall,GDProseby2.6%in2010,afterhavingfallenby
1.9%in2009.
In 2010, price stabilitywasassured. The medium-termconditional
inationforecastpublishedaspartofthequarterlymonetarypolicyassess-
mentsindicatedalowlevelofinationinitially,althoughthispickedupat
theendofthethree-yearforecasthorizon.Initsmonetarypolicydecisions,
theSNBthereforedrewattentiontothefactthatitwouldnotbeableto
maintainitsexpansionarymonetarypolicyindenitely.Giventhelowratesof
interestandrisingrealestateprices,italsowarnedbanks,householdsand
companiesnottotakeexcessiverisksinthenancingofrealestate.
(2)TheSNBprovidesthemoneymarketwithliquidity.Inthisway,itimplementsmonetarypolicyand,whennecessary,actsaslenderoflastresort.
In2010,Swissfrancliquidityinthebankingsystemrosesharplyduetothe
extensivepurchasesofforeignexchange,andthethree-monthLiborfellbelow
thetargetedlevelof0.25%.Intheprocess,thebankingsystemmovedinto
apositionofexcessliquiditywithrespecttotheSNB.Consequently,theformer
procedureforimplementingmonetarypolicyandmanagingthethree-month
Liborhadtobeadapted.Thenewprocedure,whichhasbeeninplacesince
mid-2010,isbasedonrepeatedabsorptionofexcessliquiditybymeansof
liquidity-absorbingreposandtheissuanceofSNBBills.Thankstothisnew
managementregime,ithasbeenpossibletoneutralisetheexcessliquidityto
alargeextent,withoutcausinganundesirabletighteninginmonetarypolicyintheprocess.
(3)TheSNBisentrustedwiththenote-issuingprivilege.Throughthe
banksandthepostalservice, itsupplies the economywithbanknotes and
coins,thelatteronbehalfoftheSwissConfederation.Somelocalcashredis-
tributioniscarriedoutthroughthecantonalbanks,whichactasagencieson
behalfoftheSNB.In2010,theSNBandtheBernerKantonalbankagreedto
closetheagenciesrunbythelatterinBienneandThun,sincethedemandfor
cashserviceshaddeclinedattheagenciesinquestion.InOctober,theSNB
andtheBaslerKantonalbankagreedtoclosetheagencyinBaselwitheffect
fromtheendofJanuary2011.
Liquiditysupply
Cashsupplyanddistribution
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SNB 12 Accountabilityreport
Inthecourseoftheprojectondevelopingthenewbanknoteseries,
itbecameclearattheendof2009thatthenewsecurityfeaturescouldbe
enhancedbyfurtherdevelopment.TheSNBexpectsthattherstdenomination
inthenewserieswillbeissuedtowardstheendof2012.
(4)TheSNBfacilitatesandsecuresthefunctioningofcashlesspay-
mentsystems.Itmaintainssightdepositaccountsforthebanks,steersthe
SIC interbank payment system and participates in the relevant payment
systembodies.Ithasalsobeguntoholdsightdepositaccountsforinsurance
companies,aslongastheseareactiveintherepomarket.(5)TheSNBsassetsfullimportantmonetarypolicyfunctions.They
consist mainly offoreigncurrency assetsand,toa lesserextent,nancial
assetsinSwissfrancs.Theirsizeandcompositionisdeterminedbytheestab-
lished monetary order and the requirements of monetary policy. Currency
reservesincreasedsharplyin2010duetoforeignexchangepurchases.The
foreigncurrencyacquiredduringthecourseoftheyearwasmainlyinvested
ingovernmentbonds.Indoingso,theprinciplesofcurrencyandassetclass
diversicationwereobservedasfaraspossible.Agoodinvestmentreturnwas
achievedinlocalcurrenciesduetothedecliningyieldsandriskpremiaon
asubstantialproportionofbonds,andto risingshareprices.However, in
Swissfrancterms,returnswereverynegativebecauseofsubstantialexchangeratelosses.
(6)TheNBAconfersontheSNBthemandateofcontributingtothe
stabilityofthenancialsystem.Itfullsthismandatebyanalysingsources
ofrisktothenancialsystem,overseeingsystemicallyimportantpayment
andsecuritiessettlementsystems,andbeingactivelyinvolvedincreating
theoperatingframeworkforthenancialsector.Indoingso,itworksinclose
cooperationwiththeSwissFinancialMarketSupervisoryAuthority(FINMA),
theFederalDepartmentofFinance(FDF)andforeignauthorities.In2010,
amajorfocusoftheSNBsactivitiesintheareaofnancialstabilitywasits
involvement inthe commission ofexpertsappointed by the Swiss Federal
Counciltoexaminewaysoflimitingtheeconomicrisksposedbylargecom-panies. Thecommission investigated how toalleviate the too big tofail
problem. At international level, theSNB participated inefforts to reform
bankingregulation.Inaddition,monitoringoftheSwissbankingsystemwas
intensied,withparticularattentionbeingpaidtothemortgagemarket.The
SNBalsorevieweditsmandateanditssetofinstrumentsintheareaofnancial
stability.Itconcludedthatitssetofpreventiveinstrumentsneededtobe
strengthenedinthreeareas,thesebeingaccesstoinformation,therightto
participateindrawingupregulationsandtheimplementationofregulations.
Cashlesspayments
Assetmanagement
Financialsystemstability
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SNB 13 Accountabilityreport
TheoverallriskofthestabilisationfundsetupbytheSNBinOcto-
ber2008topurchaseilliquidUBSassets,andmanagedbytheSNBwas
signicantlyreducedin2010.Thiswasduetointerestpaymentsandrepay-
mentsonstabilisationfundinvestmentsaswellasthesaleofassets.
(7)TheSNBparticipatesininternationalmonetarycooperationactiv-
ities.ImportantbodiesaretheInternationalMonetaryFund(IMF),theBank
forInternationalSettlements(BIS),theFinancialStabilityBoard(FSB)and
theOrganisationforEconomicCo-operationandDevelopment(OECD).In2010,
amajorfocusofworkinthesebodieswasagaintheefforttostrengthenglobalnancialstability.AttheIMF,themainfocuswasonquotaandgov-
ernance reform. The objective is to strengthen the IMFs capital base, in
conjunction witha reallocation ofquotashares in favourof theemerging
economies.AresultofthiswillbeareductioninSwitzerlandsquotashare.
InNovember,KazakhstanjoinedtheSwissconstituency.Atthesametime,
Uzbekistanleftit.
(8)TheSNBprovidestheSwissConfederationwithbankingservicesin
theareasofpaymenttransactionsaswellasliquidityandsecuritiesmanage-
ment.In2010,itissuedmoneymarketdebtregisterclaimsandbondsforthe
Confederationandcarriedoutpaymenttransactionsonitsbehalf.
(9)TheSNBcompilesstatisticaldataonbanksandnancialmarkets,thebalance of payments, direct investment, theinternational investment
positionandtheSwissnancialaccounts.Indoingso,itworkswiththe
appropriateofcesoftheConfederation,FINMA,authoritiesfromothercoun-
triesandinternational organisations.In 2010,themainfocus ofits work
includedtherevisionofthebilateralagreementonstatisticsbetweenSwitzer-
landandtheEuropeanUnion.
Internationalmonetarycooperation
BankingservicesortheConederation
Statistics
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SNB 16 Accountabilityreport
1.2 Monetarypolicystrategy
TheSNBmonetarypolicystrategysetsoutthewayinwhichthe
NationalBankintendstofullitsmandate.Itconsistsofthefollowingthree
elements:adenitionofpricestability,amedium-termconditionalination
forecastandatoperationallevelatargetrangeforareferenceinterest
rate,thethree-monthSwissfrancLibor.
TheSNBdenespricestabilityasanannualriseoflessthan2%inthe
consumerpriceindex(CPI).Deationisalsoregardedasafailuretoattaintheobjectiveofpricestability.Byaimingforaslightlypositiverateofination,
theSNBtakesintoconsiderationthefactthatnoteverypriceincreaseis
necessarily inationary, andthat ination cannot be measured accurately.
Measurement problems arise, for example, when the quality of goods and
servicesimproves.SuchchangesarenotfullytakenintoaccountintheCPI
calculation;asaresult,thepathofmeasuredinationtrendsslightlyabove
thatofactualination.
TheinationforecastperformsadualfunctionintheSNBsmonetary
policystrategy.Ontheonehand,itservesasthemainindicatorfortheinterest
ratedecision,and,ontheother,itisalsoanimportantcommunicationtool
fortheSNB.TheSNBreviewsitsmonetarypolicyonaregularbasistoensurethat
itisappropriateforthemaintenanceofpricestability.Withthisinmind,it
preparesaquarterlyforecastonthedevelopmentofinationoverthenext
threeyears.Theperiodofthreeyearscorrespondsmoreorlesstothetime
requiredforthetransmissionofmonetarypolicystimulitooutputandprices.
Forecasts over such a long horizon involve considerable uncertainties. In
preparingamedium-termforecast,theSNBtakesaccountofthefactthatthe
effectsofmonetarypolicyarelaggedanditthereforehastoadoptaforward-
lookingstanceinitsmonetarypolicydecisions.
ForacountrylikeSwitzerlandwithitsstronginternationalintegra-
tion, cyclicaldevelopments inthe global economy play animportantrole.Consequently,theinationforecastsarebasedonassumptionswithregardto
thefuturepathoftheglobaleconomy.
Inthemediumandlongterm,thepricetrenddependsessentiallyon
thesupplyofmoney.Forthisreason,themonetaryaggregatesandloansare
importantelementsinanumberofquantitativemodelsusedforforecasting
ination.Asregardsthepathofinationintheshortterm,indicatorsrelating
toeconomicdevelopments,aswellasexchangeratesandcommodityprices
(oil),aregenerallyofgreatersignicance.
TheSNBregularlyissuesstatementsonthedevelopmentofthemost
importantindicatorsfactoredintoitsinationforecast.Itprovidesdetailsof
themodelsitusesinanumberofitspublications.
Monetarypolicystrategy
Denitionopricestability
Purposeoinfationorecast
Preparingtheinfationorecast
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SNB 19 Accountabilityreport
Intheeuroarea,GDProseby1.7%in2010,whichwassignicantly
lessthanintheUS.Moreover,thepaceoftherecoveryvariedconsiderably
fromonecountrytoanother.
Germanyexperiencedthestrongestupturn.Itsexportindustrybene-
tedfromtheweakereuroandthestrongdemandfromtheemergingecon-
omies.Thisledtoanimprovementinthelabourmarketsituation,whichalso
lentmomentumtothedomesticeconomy.Inmanyothereurocountries,such
as,forexample,France,investmentalsobegantorevive,yetunemployment
remainedhigh.GreeceandIrelandwereinadifcultposition,sincebothofthemwerefacedwithgovernmentbudgetproblems.Rescuepackageswereput
togetherforbothcountriesin2010.WhiletherecessioninGreecedeepened,
theIrisheconomystagnated.
Asiasawacontinuationofthestrongrecovery.In2010,theChinese
economyexpandedsomewhatfasterthanin2009,atabout10.3%.Government
transferpaymentsandarobustlabourmarketstimulatedprivateconsump-
tion.However,thegovernmentcutbackinvestmentininfrastructure,which
hadbeenincreasedpreviously,resultinginatransferofdomesticdemand
fromthepublicsectortotheprivatesector.
Theexport-orientedeconomiesofSouthKorea,Taiwan,HongKongand
SingaporebenetedfromthevigorousdemandfromChina.Domesticdemandinmostoftheseeconomieswasalsohealthy.
InJapan,GDPalsogrewstrongly,at3.9%.However,thisdidnomore
thanrestorenearlytwo-thirdsoftheGDPlostduringtherecession.Thegrowth
driverwas theexportindustry, whichbenetedfromthe strongdemand
emanatingfromtheemergingeconomies.Privateconsumption,supportedby
governmentstimulusprogrammes,alsorevived.
Inationrates,asmeasuredbytheincreaseinconsumerprices,in-
creased slightly worldwide, largely reecting rising prices for energy and
commodities.Inanumberofemergingeconomies,inationalsoincreased
asa resultofstrongeconomicgrowthandtheincreasingrateof capacity
utilisation.Bycontrast,intheadvancedeconomiescoreinationameasureofinationthatexcludesfoodandenergypricesremainedlow.Thisreected
theconsiderableexcesscapacitystillpersistinginmanyplaces.
Mixedeconomicdevelopmentsintheeuroarea
StrongupturninAsia
Infationratescreepupslightly
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SNB 20 Accountabilityreport
In2010,mostcountriesretainedtheirexpansionaryscalpolicies,
althoughthepressuretoconsolidategovernmentbudgetsincreasedinviewof
highdecitsandgrowingsovereigndebt.IntheUS,federalinvestmentin
infrastructureprojects,whichhadbeenresolvedin2009,cameintoeffect,
whiletaxcutspassedinthesameyearremainedinforce.Atthesametime,
however,thefederalstatesandlocalgovernmentsreducedexpenditureinorder
tolowertheirbudgetdecits.Inthesecondhalfoftheyear,theJapanese
governmentpassedfurthermeasuresaimedatsupportingtheeconomy.This
wasareactiontotheimminentslowdowningrowth,duepartlytotheappre-ciationoftheyenagainsttheeuroandtheUSdollar.InEurope,thesovereign
debtcrisisforcedanumberofcountriestopushaheadwithradicalausterity
measuresaimedatconsolidatingtheirgovernmentnances.
The central banks of most advanced economies maintained their
expansionarymonetarypolicies.Inanenvironmentoflowinationandhigh
unemployment,theUSFederalReservemaintainedthetargetrangeforits
referenceinterestrateunchangedat0.00.25%.AtthebeginningofNovember,
itannouncedasecondlarge-scalepurchaseprogrammeforlong-termtreasury
bondsaspartofitsquantitativeeasingpolicy.Undertheprogramme,USD600
billionoftreasurybondsaretobeacquiredbyJune2011.
TheEuropeanCentralBanks(ECB)mainrenancingrate,whichhadbeenreducedto1.0%inmid-2009,washeldatthislevelthroughout2010,and
theECBcontinuedtoofferunlimitedliquiditytobanks.FromMay,theECB
alsopurchasedgovernmentbondsfrommemberstatesindifcultiesinorder
tostabilisenancialmarkets.Theone-yearcoveredbondpurchaseprogramme
expiredattheendofJuneandwasnotextended.
TheBankofJapanmaintaineditszerointerestratepolicy.Italso
intervenedintheforeignexchangemarketinSeptemberinordertocounteract
theappreciationoftheyen.InOctober,theJapanesecentralbankannounced
thatitwouldmaintaininterestratesatzerountilthefallinthepricelevel
hadbeenbroughttoahalt.Atthesametime,itdecidedtoacquireassets
amountingtoJPY5,000billion(includingprivatesectorassets)inordertolowermarketinterestrates.
Centralbanksintheemergingeconomies,facedwithstrongeconomic
growthandanincreasingthreatofination,begantighteningtheirmonetary
policystance.TheChinesecentralbankraiseditsreserverequirementratio
forbanksaswellasitsreferenceinterestratesandtookanumberoffurther
administrativemeasuresaimedatcurbingthestronggrowthinlending.In
addition,itallowedaslightappreciationoftheyuantotakeplace.Bytheend
oftheyear,theChinesecurrencyhadgainedsome3.5%againsttheUSdollar.
Consolidationoscalpolicybegins
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2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
United States
Japan
Euro area
United Kingdom
Switzerland
In real terms,index: 100 = period average(Q1/2006Q4/2010)Sources: SECO, ThomsonFinancial Datastream
Level of gross domestic product
92
94
96
98
100
102
104
106
United States
Japan
Euro area
United Kingdom
Switzerland
Year-on-year change
in percent, in real termsSources: SECO, ThomsonFinancial Datastream
Growth of gross domestic product
12
10
8
6
4
2
0
2
4
6
United States
Japan
Euro area
United Kingdom
Switzerland
In percentSources: SFSO, ThomsonFinancial Datastream
Inflation
3
2
1
0
1
2
3
4
5
6
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1.4 EconomicdevelopmentsinSwitzerland
Theyear2010wasoneofrecoveryfortheSwisseconomy.GDProseby
2.6%afterhavingfallenby1.9%in2009.Signicantmomentumwasprovided
bythedomesticeconomy,buttheexportindustryalsocontributedtogrowth.
RealgrossdomesticproductYear-on-yearchangeinpercent
2006 2007 2008 2009 2010
Privateconsumption 1.6 2.3 1.3 1.0 1.7
Governmentconsumption 0.3 0.3 1.7 1.6 1.6
Investment 4.7 5.1 0.5 4.9 4.6
Construction 1.4 2.3 0.0 3.0 3.3
Equipment 10.1 11.1 0.8 10.8 5.7
Domesticdemand 1.4 1.4 0.2 0.6 0.5Exportsofgoodsandservices 10.3 9.6 3.3 8.7 9.3
Aggregatedemand 4.5 4.4 1.4 3.0 3.7
Importsofgoodsandservices 6.5 6.1 0.3 5.4 6.7
Grossdomesticproduct 3.6 3.6 1.9 1.9 2.6
Sources:SECO,SFSO
Supportedbythesoliddemandfromabroad,exportsofgoodsand
servicesrose again in 2010, thereby recovering a large partof the losses
suffered in2009.However,around themiddleof theyear,therevival lost
considerablemomentum,partlyasaresultoftheappreciationintheSwissfranc.Theexpansioningoodsexportswasbroadbased.Inthecaseofservices,
growthwasmainlyattributabletohighernetearningsfrommerchandising,
whileinternationalbankingoperationsderivedlittlebenetfromtherecovery
inglobalnancialmarkets.
Importsincreasedsubstantiallyduetorobustdomesticdemandand
thestrengthoftheSwissfranc.Inthesecondhalfoftheyear,however,they
alsolostmomentum.
Recoveryin2010
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Therateofunemployment,whichhadsoaredfrom2.5%to4.2%during
thecrisis,decreasedslightlyagainin2010.Bytheendoftheyear,ithad
fallento3.5%(seasonallyadjusted),whichcorrespondedtoareductionof
about24,000to139,000people.
Duringthecrisis,manycompanieshadintroducedshort-timework,
particularlyinmanufacturing.AccordingtoastudycarriedoutbytheState
SecretariatforEconomicAffairs(SECO),thenumberofemployeesonshort-time
workinMay2009peakedatsome92,000people(notseasonallyadjusted),
fallingrapidlythereafter.InNovember2010,only7,300peoplewerestillaf-fectedbyshort-timework.Contrarytoexpectat ions,thedeclineinshort-time
workwasnotassociatedwithacorrespondingincreaseinunemployment.This
suggeststhatamajorityoftheemployeesengagedinshort-timeworkhave
beenfullyreintegratedintheproductionprocess.
Nominalwagesincreasedonlymarginallyin2010.AccordingtoSNB
estimates,nominalwagesasmeasuredbytheSwisswageindexwereupby
0.9%,following2.1%in2009.Thetotalwagebill(compensationofemployees)
asmeasuredbythenationalaccountsrosebyanestimated1.6%.Givenan
increaseinfull-timeequivalentemploymentof0.7%,thisresultedina0.9%
increaseinnominalwagesfor2010,following3.1%in2009.Unlikethewage
index, which relates to existing employment contracts, the data in thenationalaccountsoncompensationofemployeesalsoincludechangesin
employmentstructureandbonuspayments.
Thefactthatnominalwagesroseonlyslightlyreectsthesituation
followingtheeconomiccrisis.First,thesubduedeconomicenvironmenthad
a negative impact on salary agreements at theend of 2009. Second, the
strongincreaseinunemploymentduringthecourseof2009putadamperon
salaryagreementsforpeopleenteringthelabourmarketorchangingjobs.In
addition,noinationadjustmentswererequiredbecausetheconsumerprice
indexhadfallenby0.5%in2009.
Sincetheconsumerpriceindexroseby0.7%in2010,realwageshardly
increasedatall.BoththeSwisswageindexandthenationalaccountsshoweda0.2%rise.In2009,theyhadrisenby2.6%,accordingtothewageindex,or
3.6%,accordingtothenationalaccounts.
Unemploymentallingoverthecourseotheyear
Slightincreaseinwages
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Growthinprivateconsumptiongatheredpacein2010.Sinceincomes
increasedonlymarginally,householdsmainlynancedadditionalconsumption
byreducingtheirsavingrate.Thedeclineinunemploymentalsohadapositive
impact,whichshoweditselfintheformofanimprovementinconsumercon-
dence.Thedemandfornewcarsrecoveredparticularlystronglyandamajor
partofthesaleslossessufferedduringthecrisiswerecompensated.However,
consumptionofgoodsandservicesthatarelesssensitivetocyclicalmove-
ments,includingexpenditureonfoodandaccommodation,alsorosefurther.
Following a phase of strong growth during the crisis, governmentconsumption declined signicantly in 2010. This was mainly because the
stabilisationmeasuresdesignedtosupportthedomesticeconomycameto
anend.
GDPgrowthwasbroadbasedin2010intermsofindividualindustries.
Thoseindustriesthathadsufferedthebiggestlossesduringthecrisisgrew
moststrongly.Theyincludedmanufacturing,tradeandnance.Buteventhe
areasthathadbeensparedbythecrisis,suchastheconstructionindustry,
publicadministrationandhealthcare,alsosupportedtheeconomy.
Therecoveryoftheglobaleconomyledtoincreasingpricesforcom-
moditiesandenergy.Asaresult,Swissproducerandimportpricesalsorose.
UndertheimpactofthestrongSwissfranc,however,inationarypressureremained low. Overall, Swiss producer prices were down slightly from the
previousyearslevel(0.1%),whileimportpriceswereupby0.8%.Excluding
commodities and energy, import prices were 1.6%below the level of the
previousyear.
Robustgrowthinconsumption
Broad-basedGDPgrowthintermsoindividualindustries
Slightlyhigherproducer
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2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
Consumer prices
Domestic goods
Imported goods
Year-on-year changein percentSource: SFSO
Consumer prices
8
6
4
2
0
2
4
6
8
Producer and import prices
Producer prices
Import prices
Year-on-year changein percentSource: SFSO
Producer and import prices
12
10
8
6
4
2
0
2
4
6
Consumer prices
Trimmed mean
Dynamic factor inflation
Year-on-year changein percentSources: SFSO, SNB
Core inflation
1.5
1
0.5
0
0.5
1
1.5
2
2.5
3
3.5
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Nationalconsumerpriceindexandcomponents
Year-on-yearchangeinpercent
2009 2010 2010
Q1 Q2 Q3 Q4
Consumerpriceindex,overall 0.5 0.7 1.1 1.0 0.3 0.3
Domesticgoodsandservices 1.2 0.6 0.8 0.6 0.4 0.5Goods 1.0 0.1 0.4 0.0 0.4 0.5
Services 1.3 0.8 0.9 0.9 0.7 0.8
Privateservices(excludingrents) 0.6 0.6 0.8 0.7 0.5 0.4
Rents 2.5 1.1 1.3 1.1 0.9 1.2
Publicservices 0.8 0.9 0.7 0.8 0.7 1.2
Importedgoodsandservices 4.7 0.9 1.8 1.9 0.1 0.1
Excludingoilproducts 0.3 1.3 0.9 1.2 1.4 1.5
Oilproducts 25.9 13.9 18.3 21.0 8.6 8.5
Coreinfation
Trimmedmean 1.1 0.6 0.7 0.6 0.4 0.6
Dynamicfactorination 0.4 0.7 0.3 0.6 0.8 1.0
Sources:SFSO,SNB
ThestrongSwissfrancalsoexertedpressureoninationasmeasured
bytheCPI,whichfellfrom1.0%inJanuaryto0.5%inDecember.Thusthe
costofimportedgoods(excludingoilproducts)decreased,onaverage,by
1.3%.Atthesametime,pricesofdomesticgoodsandservicesalsorosemore
slowly.Therateatwhichrentsincreasedfellfrom2.5%in2009to1.1%in
2010,whichwasprobablyattributabletothedropinthereferenceinterest
ratefortenancies.Numerousshort-termuctuationscanhaveanimpactonination,as
measuredbytheCPI.TheSNBcalculatestwocoreinationrates,thetrimmed
meananddynamicfactorination,inordertoanalysetheinationtrend.
Thetrimmedmeanmethodexcludes,eachmonth,thegoodswiththehighest
pricevariation.Inthecaseofdynamicfactorination,coreinationisderived
fromalargenumberofprices,datafromtherealeconomy,nancialindicators
andmonetaryvariables.
In2010, the trimmed mean fell from 0.9% in Januaryto 0.6% in
December,although itremainedin positiveterritorythroughout theyear.
Dynamicfactorinationmovedawayfromzero,andreached1.1%bytheend
oftheyear.
Declineininfationovertheyear
Coreinfationremainslow
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2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
Three-month Libor
Yield on ten-yearSwiss Confederation bonds
In percent
Money and capital market rates
0
0.5
1
1.5
2
2.5
3
3.5
CHF/USD
CHF/EUR
Nominal
Exchange rates
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Real
Nominal
40 trading partnersIndex: January 1999 = 100
Export-weighted Swiss franc exchange rates
90
95
100
105
110
115
120
125
130
135
140
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10.
12.
2009
11.
03.
2010
17.
06.
2010
16.
09.
2010
16.
12.
2010
Q4 2009
Q4 2009
Q1 2010
Q1 2010
Q2
Q2
Q3
Q3
Q4
Q4
Three-month Libor
Target range
Daily values in percent
Three-month Libor
0
0.25
0.5
0.75
1
1.25
1.5
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MonetaryconditionsreectedtheSNBsexpansionarymonetarypolicy.
Thethree-monthLiborstoodatthedesiredlevelof0.25%.Althoughgrowth
inthemonetaryaggregateshadslowedinthemonthspriortotheassessment,
itwasstillsubstantial,at16%comparedtotheyear-backperiodforM2and
6%forM3.Liquidityheldbyhouseholdsandcorporationswascorrespond-
inglyhigh.Lookingatmortgageloans,theyhadrecordedgrowthofsome5%
inthemonthsprecedingthequarterlyassessment.
Theexport-weightedexternalvalueoftheSwissfranchadincreased
further,mainlyduetotheweakeningoftheeuro.Frommid-Decembertomid-March,theSwissfrancappreciatedby3.3%againsttheeuro,butlost4.7%in
valueagainsttheUSdollar.
Inviewofthecontinuedfragilityoftherecoveryandthehighdown-
siderisks,theSNBdecidedtomaintainitsexpansionarymonetarypolicy.It
leftthetargetrangeforthethree-monthLiborunchangedat0.00.75%and
continuedtoaimforaLiborwithinthelowerpartofthetargetrangeat
around0.25%.TheSNBalsoannouncedthatitwouldcontinuetoactdecisively
to prevent anexcessive appreciation of the Swiss franc against theeuro.
Furthermore,itwarnedthebanksaswellascorporationsandhouseholdsof
theriskstheywouldruniftheydidnotremaindisciplinedwithrespecttoreal
estatenancing.Theconditionalinationforecastpublishedatthetimeofthemonetary
policydecisionwasbasedonathree-monthLiborof0.25%andwasalmost
unchangedfromthatoftheassessmentinDecember2009.Intherstquarter
of2010,inationrosebrieyduetoabaseeffectresultingfromthehistoric-
ally lowlevel of the oil price a year previously. The conditional ination
forecastfor2010layslightlyabovethatofDecemberbecauseeconomicactiv-
itywasmorerobustthanhadbeenexpectedinDecember.However,prices
weresubduedby the factthat GDPremained below potentialandbythe
appreciationoftheSwissfranc.From2011,thenewinationforecastwas
thereforeslightlybelowthatofDecember.However,theforecastalsoshowed
thatinationwouldincreasesignicantlyin2011,andthatitwouldexceedthe2%levelin2012.
Despitethesetbackinthesecondquarterresultingfromthenancial
market turmoil, the recovery intheglobaleconomywascontinuingat the
timeofthequarterlyassessmentinJune.IntheUS,therewasafurther
recoveryindomesticdemandandthelabourmarket.InEurope,however,
restrainedexpenditureonthepartofhouseholdsandcompaniesmeantthat
economicactivityremainedsubdued.Overall,theSNBreviseditsforecastfor
globalgrowthin2010and2011upwardswhilesimultaneouslydrawingatten-
tiontothehighdownsiderisks.
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TheSNBdecidedtomaintainitsexpansionarymonetarypolicyand
leavethetargetrangeforthethree-monthLiborunchangedat0.00.75%,
holdingtheLiborinthelowerpartoftherangeataround0.25%.Italso
statedthatitconsideredthatthedeationaryriskinSwitzerlandhadlargely
disappeared. Atthe same time, uncertainty had increasedsince the last
assessment.Thelatesttensionsonthenancialmarketsrelatedtothepublic
nancesofsomeindividualcountrieshadincreasedthedownsiderisks.Con-
sequently,theSNBdrewattentiontothefactthat,shouldthesedownside
risksmaterialiseand,viaanappreciationoftheSwissfranc,leadtoarenewedthreatofdeation,itwouldtakeallthemeasuresnecessarytoensureprice
stability.
Theconditionalinationforecastfor2010and2011hadincreased
slightlysinceMarch,althoughtheinationoutlookwasunchangedoverall.It
wasbasedonathree-monthLiborof0.25%.Tomid-2011,theconditionalina-
tionforecastremainedbelowthe1%level,becausethebaseeffectattributable
totheoilpricewaspeteringoutandGDPremainedbelowpotential.Fromthe
thirdquarterof2011,inationwasexpectedtoincrease,reaching2.2%in
2012. Consequently, the forecast showed that the expansionary monetary
policycouldnotbemaintainedovertheentireforecasthorizon.
AtthetimeofthequarterlyassessmentofSeptember,therecoveryoftheglobaleconomywasproceedingatasomewhatslowerpacethanhadbeen
assumedinJune.IntheUSandAsia,growthappearedtohavefalteredalittle
inthesecondquarter.Intheeuroarea,bycontrast,theeconomicsituation
hadimprovedsignicantlyduetostrongforeigndemandandafavourable
exchangerate.Asaconsequence,theSNBslightlyreviseditsgrowthforecasts
fortheUSdownwards,to2.7%for2010and2.5%for2011.Fortheeuroarea,
itexpectedsomewhatstrongergrowthfor2010(1.7%),butlefttheforecast
for2011unchanged(2.2%).
InSwitzerland,therevisionofnationalaccountsdatapublishedin
Septembersuggestedthattherecessionof2009hadbeendeeperthanprevi-
ouslyassumed.However,theriseinSwissrealGDPbetweenthethirdquarterof2009andthesecondquarterof2010hadbeensignicantlystrongerthan
potentialoutput.Inaddition,manufacturingwhichhadbeenmostseriously
affectedbytherecessionhadbeenclearlyontheroadtorecoveryduring
thisperiod.Furthermore,unemploymentandshort-timeworkhaddeclined
furtherinthemonthspriortotheSeptemberassessment.Consequently,the
SNBforecastGDPgrowthofapproximately2.5%for2010.Thishighergrowth
forecast,comparedtothepreviousassessment,didnotresultfromareassess-
mentoftheeconomicoutlook,butwasduetotherevisionoftheprevious
GDPgures.However,itwasexpectedthat,inthequartersahead,GDPgrowth
wouldslowasaresultofthestrongSwissfrancandthedecliningmomentum
oftheglobaleconomy.
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InSwitzerland,theeconomictrendcontinuedpositiveatthetimeof
theassessment.Capacityutilisationhadreturnedtoanormallevelinmanufac-
turing,whileinconstructionitwasabovethelong-termaverage.Employment
alsoincreasedmoderatelyandunemploymentdeclinedfurther.However,the
weakening of exports, in particular, suggested a signicant slowdown in
growthinthequartersahead.Consequently,theSNBexpectedGDPtogrowby
some1.5%in2011,followinggrowthofapproximately2.5%in2010.
SincetheSeptemberassessment,liquidity-absorbingoperationshad
continued. This had ledto a decline in the monetary base. However, thebroadermonetaryaggregatescontinuedtoexpandstrongly.Inthemonths
precedingthequarterlyassessment,growthinM2hadbeensubstantial,at
approximately9%comparedtotheyear-backperiod,ashadthatinM3,atsome
6%.Inviewoftheexpansionarymonetaryconditions,lendingbusinesshad
remainedbrisk.Bankshadmaintainedtheirlendingstandardsforcompanies
andhouseholdsinthethirdquarterof2010andthiswasreectedina
continuationofthehighgrowthformortgagevolumeinthemonthspriorto
theassessment.
SincetheSeptemberassessment,theSwissfranchadgainedinvalue
againsttheUSdollarwhilechanginglittlewithrespecttotheeuro.Thereal
export-weightedexternalvalueoftheSwisscurrencyhaddecreasedslightlyinOctoberandNovember,butremainedatahighlevel.
The SNB therefore decided to maintain its expansionary monetary
policy and leavethetarget rangefor the three-month Liborunchangedat
0.00.75%,keepingtheLiborwithin thelower partofthetargetrangeat
around0.25%.Nevertheless,itdrewattentiontothehighlevelofuncer-
taintyandthedownsiderisksinconnectionwiththeconcernsaboutstability
intheeuroarea.Shouldthesetensionsbeexacerbatedandputastrainon
economicdevelopmentsintheeuroarea,thiswouldalsohaveadetrimental
effectontheSwisseconomy.Ifathreatofdeationweretoemergeasa
resultofsuchasituation,theSNBwouldtakethemeasuresnecessaryto
ensurepricestability.Theconditionalinationforecastpublishedatthetimeoftheassess-
mentwasbasedontheassumptionofathree-monthLiborof0.25%,andfor
2012and2013wasslightlyundertheSeptemberforecast.However,forthe
beginningof2011,itshowedinationslightlyabovethegurepublishedin
September,becausetheoilpricehadincreased.Theincreaseininationin
thethirdquarterof2011wasattributabletoabaseeffect,becauseination
ayearearlierhadbeencomparativelylow.Thelowerinationoutlookfor2012
and2013,comparedtotheSeptemberforecast,resultedfromtheslowdownin
theinternationaleconomy.However,therisingpathofinationin2012and
2013showedthattheexpansionarymonetarypolicycouldnotbemaintained
overtheentireforecasthorizonwithoutcompromisinglong-termpricestability.
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Inorderforabanktomaintainitssolvency,itmusthavesufcient
liquidityatalltimes.Abanksmostliquidassetsaresightdepositsheldat
theSNB,sincetheycanbeusedimmediatelyforpaymenttransactionsand
aredeemedtobelegaltender.Inaddition,banksholdsightdepositsatthe
NationalBanktosatisfyminimumreserverequirementsandasliquidityre-
serves.SightdepositsattheSNBbearnointerest.
Theindividualnancialmarketparticipantsadjusttheirliquiditypos-
itionsonthemoneymarket.Bankswantingtoplacefundsonashort-term
basisprovideliquidityintheformofaloantootherbanksthatrequireshort-termrenancing.Theseloanscanbegrantedonasecuredorunsecuredbasis.
Adisruptioninthemoneymarketsimpairstheliquidityadjustmentprocess
betweenthemarketparticipantsandcanthreatenthesolvencyofthebanks.
2.2 Monetarypolicyinstruments
Withinitssetofmonetarypolicyinstruments,theSNBdifferentiates
betweenopenmarketoperationsandstandingfacilities.Inthecaseofopen
market operations, theSNB takes theinitiative inthe transaction. Wherestandingfacilitiesareconcerned,itmerelysetstheconditionsunderwhich
counterpartiescanobtainliquidity.Regularopenmarketoperationsinclude
repotransactionsandtheissuanceofSNBBills.Furtherinstruments,suchas
foreignexchangepurchases,areavailableifnecessary.Standingfacilitiesin-
cludetheliquidity-shortagenancingfacilityandtheintradayfacility.
Inprinciple,allbanksandsecuritiesdealersdomiciledinSwitzerland
orthePrincipalityofLiechtensteinareadmittedascounterpartiesinmon-
etarypolicyoperations.Otherdomesticnancialmarketparticipantssuchas
insurancecompanies,aswellasbanksandothernancialmarketparticipants
domiciledabroad,maybeadmittedtomonetarypolicyoperationsprovided
thisisintheSNBsmonetarypolicyinterestandthesaidinstitutionscontrib-utetotheliquidityonthesecuredSwissfrancmoneymarket.In2010,ve
domesticinsurancecompanieswereadmittedaseligiblecounterparties.
TheGuidelines of the Swiss National Bank (SNB) on Monetary Policy
InstrumentscontainexplicitinformationwithregardtotheSNBsscopeof
businessassetoutinart.9NBAanddescribetheinstrumentsandprocedures
usedbytheSNBfortheimplementationofitsmonetarypolicy.Theyalso
denetheconditionsunderwhichthesetransactionsareconcludedandwhat
securitiescanbeusedascollateralformonetarypolicyoperations.
Signicanceosightdepositsandthemoneymarket
Openmarketoperationsandstandingacilities
Eligiblecounterparties
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TheSNBconductsregularopenmarketoperationsbymeansofauc-
tions.TransactionsareconcludedviatheEurexZurichLtdelectronictrading
platform.
Asarule,repoauctionsareconductedintheformofavolumetender.
Inthistypeofauction,eachcounterpartysubmitstotheSNBoffersforthe
amountofliquidityitiswillingtoprovideorrequestforagivenreporate.If
thetotalamountofalltheoffersexceedstheSNBspredeterminedallotment
volume,theSNBreducestheamountsofferedproportionately.
SNBBillauctionsare,asarule,conductedintheformofavariableratetenderwithallotmentaccordingtotheAmericansystem.TheSNBscounter-
partiessubmittheirofferscomprisingtheamountofliquiditytheyarewilling
toprovideandpriceatwhichtheywilldoso.Eachcounterpartymaysubmit
asmanyoffersasitwishes,andmayalsovarytheinterestratefromoneoffer
toanother.TheSNBobtainsliquidityfromtheparticipantsthathaveoffered
atorbelowthehighestinterestrateacceptedbytheSNB,payingthepartici-
pantstheinterestratestatedintheiroffers.
Byplacingoracceptingoffersforrepotransactionsontheelectronic
tradingplatform, theSNBis able toinuence interestrates inthemoney
marketatalltimes,andnotjustatthetimeoftheauctions.Suchne-tuning
transactionscanbeusedforbothprovidingandabsorbingliquidity.
Standingacilities
Tobridgeunexpectedliquiditybottlenecks,theSNBoffersaliquidity-
shortagenancingfacility.Inorderforabanktoobtainliquiditythroughthis
facility,theNationalBankmustgrantalimittobecoveredby110%collateral
eligibleforSNBreposatalltimes.Eachcounterpartyhastherighttoobtain
liquidityuptothelimitgranteduntilthefollowingbankworkingday.This
limitisdrawndownintheformofaspecial-raterepotransaction.Thespecial
rateapplicableforobtainingliquiditythroughtheliquidity-shortagenancing
facilityisbasedontheSARON(SwissAverageRateOvernight)plusasurcharge
of50basispoints.
In2010,thelimitsundertheliquidity-shortagenancingfacilitywere
increasedbyatotalamountofCHF1.5billiontoCHF37.5billionattherequest
ofnancialmarketparticipants.Bytheendoftheyear,85nancialmarket
participantshadbeengrantedalimit(2009:79).
Auctionprocedures
Bilateraloperations
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Duringtheday,theSNBprovidesitscounterpartieswithinterest-free
liquidity(intradayliquidity)throughrepotransactionssoastofacilitatethe
settlementofpaymenttransactionsviaSwissInterbankClearing(SICsystem)
andthesettlementofforeignexchangetransactionsviaContinuousLinked
Settlement(CLS),themultilateralpaymentsystem.Thecashamountsdrawn
mustberepaidbytheendofthesamebankworkingdayatthelatest.Intraday
liquiditycannotbe usedtocomplywithminimumreserverequirementsor
liquidityrequirementsunderbankinglaw.
Othermonetarypolicyinstruments
Inaccordancewithart.9para.1NBA,theSNBhasfurthermonetary
policy instruments at its disposal. These include, in particular, spot and
forwardforeignexchangetransactions,currencyswaps,thepurchaseand
saleofsecuritiesdenominatedinSwissfrancsandderivativesonreceivables.
Inaforeignexchangeswap,thepurchase(sale)offoreignexchangeat
thecurrentspotrateandthesale(purchase)oftheforeignexchangeatalater
datearesimultaneouslyagreed.Beforetheintroductionofrepotransactions
in1998,foreignexchangeswapswerethemostimportantmonetarypolicy
instrumentforsupplyingthemoneymarketwithliquidity.
FromOctober2008toJanuary2010,theSNBprovidedbanksinSwitzer-
landandabroadwithadditionalliquidityviaEUR/CHFforeignexchangeswaps.
ThefocuswasespeciallyonbanksoutsideSwitzerland,whichhadnoaccess
totheSNBsrepoauctions.Theforeignexchangeswapswereconductedas
auctionsataxedprice(volumetender).Duetodecliningdemandandim-
provedconditionsontheSwissfrancmoneymarket,foreignexchangeswap
operationswerediscontinuedinJanuary2010.
AlargeproportionoftheEUR/CHFforeignexchangeswapswerecon-
ductedaspartofthetemporaryswapagreementsconcludedinautumn2008
withtheEuropeanCentralBank,theNationalBankofPolandandtheHungarian
centralbank.TheSNBprovidedthesethreecentral bankswithSwiss franc
liquidityagainsteurosthroughaforeignexchangeswapfacility,andthey
werethenabletouseauctionsforallocatingthefundstobanksintheir
spheresofinuence.InJanuary2010,thepartiesinvolvedagreednotto
renewtheseagreements.
Intradayacility
Foreignexchangeswaps
EUR/CHForeignexchangeswaps
Swapagreementswiththe
ECB,PolandandHungary
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TheswapagreementconcludedwiththeUSFederalReserveinDecem-
ber2007,whichenabledtheSNBtoobtainUSdollarsforSwissfrancs,wasno
longerrenewedinFebruary2010forthetimebeing.Ithadprovidedthebasis
forSNBrepoauctionsinUSdollars(cf.chapter2.7).Inviewofthetensionson
thenancialmarketsinMay,theSNBandtheothercentralbanksparticipating
intheagreementdecidedtoreintroducethetemporaryswapfacilitiesforUS
dollarliquidity.InDecember2010,thesewereextendedto1August2011.
TheSNBacquiredsubstantialamountsofforeignexchangein2010.
Thepurchaseswereconcludedalmostexclusivelyviaelectronictradingplat-formsandinvolvedawiderangeofcounterpartiesinSwitzerlandandabroad.
TheSNBalsomadeuseofshort-termforeignexchangeoptionstoalimited
extentinsupportofitsforeignexchangepurchases.TheSNBsoldmarketable
EUR/CHFoptionstoitscounterpartiesandreceivedoptionpremiainexchange.
Theoptionsprovidedthecounterpartieswiththerighttoselleurosagainst
francstotheSNBatapredenedprice.Atthesametime,theoptionscaused
counterpartiestosellSwissfrancsthemselveswhentheeurowasdeclining
againsttheSwissfrancandthustobolstertheeuro.
TheSwissfrancbondsissuedbydomesticprivatesectorborrowers,
whichtheSNBhadacquiredin2009,wereeitherfullysoldorredeemedupon
maturityin2010.
2.3 Liquiditymanagementin2010
ThelargeamountsofforeignexchangepurchasedbytheSNBledto
excessliquidityinthebankingsystem.Consequently,theexistingprocedure
forimplementingmonetarypolicyhadtobeadapted.Thenewimplementation
procedureisbasedonarepeatedabsorptionofexcessliquidity.Thismeans
that,asarule,theSNBnowprovidesrenancingonlywithintheframework
oftheliquidity-shortagenancingandintradayfacilities.In2010,liquidity-absorbingreposandSNBBillswereusedtoabsorb
surplusliquidity.Whereasrepotransactionsarefocusedonsteeringinterest
rates,themainpurposeofSNBBillissuesistoabsorbliquidity.
SwapagreementwiththeUSFederalReserve
Foreignexchangepurchases
SaleoSwissrancbonds
Newliquiditymanagementregime
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Repotransactionsservetosteerthethree-monthLibor.Theyarecon-
ducteddailyintheformofanauctionatthereporatedeterminedbytheSNB
(volumetender).Asarule,reposhaveatermofoneweek.
Liquidity-providingrepotransactionswerecarriedoutupto12May
2010.Theiraveragevolumein2010amountedtoCHF6.2billion,57%ofwhich
wasaccountedforbytransactionswithaone-weekterm.Banksdailybidsat
liquidity-providingrepoauctionsuctuatedbetweenzeroandCHF5.12billion,
withtheSNBallotting100%atalltimes.TheSNBdiscontinueditsliquidity-
providingrepoauctionsinMayaftermarketparticipantsdemandforliquidityhadcometoastandstillowingtothestrongexpansionofliquiditythrough
theSNBsforeignexchangepurchases.
Liquidity-absorbingrepotransactionshavebeenconductedsince5July
2010inordertosteerthethree-monthLibor.Theaveragevolumeofthese
transactionsamountedtoCHF11.6billion,withthereporaterangingbetween
0.09%and0.14%.Intheliquidity-absorbingrepoauctions,thedailybidsby
banksreachedanaverageofCHF13.8billionandwerethusattimeswellin
excessoftheallottedamount.Onaverage,89.1%ofthebidscamefromdo-
mesticbanks,theremainderfrominternationalbanksabroad.Allotmentby
theSNBaveraged34.8%.
Ifnecessary,theSNBalsousedne-tuningoperationstoinuencecallmoneyrates.Suchoperationswereusedinspecialcasesandtoalimited
extentonlyfortheprovisionofliquiditytothemarket.
IssuingSNBBillsservestoabsorbalargepartofliquidity.Theassoci-
atedSNBBillauctionsarecarriedoutintheformofavariableratetender
accordingtotheAmericanallotmentsystem.Thisformofauctionreectsthe
marketparticipantswillingnesstopayandthereforeenablestheSNBtoabsorb
liquidityatmarketprices.
Since25May2010,SNBBillshave,asarule,beenauctionedona
weeklybasiswithatermof28days.Auctionswithlongertermsof84,168
and336daysarealsoconducted.TheoutstandingvolumeofSNBBillsrose
fromCHF41.1billioninMaytoCHF107.9billioninDecember.BidssubmittedduringthisperiodrangedfromCHF1.7billiontoCHF37.7billion.Anaverage
of73%ofSNBBillsthatwerebidforwasallotted.Overall,83bankspartici-
patedatleastonceinanSNBBillauction.
Repotransactionstosteerthethree-monthLibor
SNBBillstoabsorbliquidityatmarketprices
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Q4 2009
Q4 2009
Q1 2010
Q1 2010
Q2
Q2
Q3
Q3
Q4
Q4
Sight deposits
Weekly averages, in CHF billions
Sight deposits of domestic banks
0
15
30
45
60
75
90
105
120
Three-month Libor
SNB repo rate (liquidity provision)
SNB repo rate (liquidity absorption)
Target range
Daily values in percent
Three-month Libor and one-week repo rate
0
0.2
0.4
0.6
0.8
1
SAR overnight (SARON)
SAR 1 week
SAR 1 month
SAR 3 months
Monthly averages of daily figures,in percent
Swiss franc reference rates (Swiss Average Rates, SAR)
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
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MinimumreservesinCHFmillions
2009 2010
Outstanding Outstanding
Average Average
SightdepositsattheSNB 53698 43961
Banknotes 6000 5727
Coinsincirculation 103 98
Eligibleassets 59801 49785
Requirement 8947 9488
Complianceinexcessofrequirement 50854 40297
Complianceinpercent 669% 525%
In2010 (from20 December 2009 to 19 December 2010), statutory
minimumreservesamountedtoanaverageofCHF9.5billion.Thisrepresents
a 6% increase year-on-year. Eligible assets amounted to an average of
CHF49.8billion,whichwasslightlylessthaninthepreviousyear.BanksexceededtherequirementbyanannualaverageofaroundCHF40.3billion
(2009:CHF50.9 billion).The averagedegreeofcompliance,at 525%,was
slightlybelowthepreviousyearslevel(669%).
In2010,thestatutoryminimumreserverequirementsweremetby
virtuallyallthebanks(totalnumberofbanks:296).Threebanksbreached
requirementsduringonereportingperiodeach.Thesumsinvolvedwereneg-
ligible.Thetotalamountininterestthatthecontraveningbankswererequired
topaycametoCHF38,105.
2.6 CollateraleligibleforSNBrepos
Inaccordancewithart.9NBA,theSNBmayenterintocredittransac-
tionswithbanksandothernancialmarketparticipants,onconditionthat
sufcientcollateralisprovidedfortheloans.Insodoing,theSNBprotects
itselfagainstlossesandensuresequaltreatmentofitscounterparties.Art.3of
theGuidelines of the Swiss National Bank (SNB) on Monetary Policy Instruments
speciesthesecuritiesthatareeligibleascollateralinSNBtransactions.The
Instruction Sheet on Collateral Eligible for SNB Reposliststhecriteriathathave
tobemet for securities tobeeligibleforSNBrepos.Onlythose securities
includedinthelistofeligiblecollateralmaybepledgedascollateralforrepotransactions.
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TheSNBpursuesan openaccess policyand allowsbanksdomiciled
abroadtoparticipateinitsmonetarypolicyoperations,too.Securitiesde-
nominated in foreign currenciesare therefore also accepted as collateral
besidesSwissfrancsecurities.Oneconditionisthattheissuerofsecuritiesis
domiciledinSwitzerlandoramemberstateoftheEuropeanUnionorthe
EuropeanEconomicArea.Theminimumrequirementswithregardtocollateral
inforeigncurrenciesarehigherthanforthosedenominatedinSwissfrancs.
In2010,95%ofthesecuritieseligibleascollateralforSNBreposweredenom-
inatedinforeigncurrencies.Byinternationalstandards,theSNBhasatraditionofsettinghigh
minimumrequirementswithregardtothemarketliquidityandcreditrating
ofcollateral.Inaccordancewithapplicableregulations,securitiesinSwiss
francsorinselectedforeigncurrenciesareeligibleiftheyfullcertainmin-
imumrequirementsregardingrating,issuevolume,deliveryandsettlement.
Asaresultofthestringentrequirementswithregardtocollateraleligiblefor
SNBrepos,banksarerequiredtoholdrecoverableandliquidassetsontheir
balancesheets.Thisiscrucialifbanksaretobeabletorenancetheiroper-
ations on the money market even underdifcult conditions. Eligibility as
collateral for SNB repo transactions isalso very important withregard to
thesesecuritieseligibilityasliquidassetsinaccordancewithart.16oftheBankingOrdinance.
Collateral eligible for SNB repos isvery important for the secured
moneymarket.Over99%ofalltransactionsbetweennancialmarketpartici-
pantsthatwereconcludedandsettledviathereposystemwerecoveredby
collateraleligibleforSNBrepos.Thehighrequirementsplacedonthecollateral
serveespeciallytoprotectcashproviders,andenableawiderangeofmarket
participantstotakepartinthereposystem.Duringthenancialcrisis,the
high quality of collateral deliveredand the efciency of the repo system
provedcrucialtothefunctioningofthemoneymarket.
TranslatedintoSwissfrancs,thepotentialvolumeofcollateraleligible
forSNBreposrecededfromaroundCHF10,000billiontoCHF9,000billionin2010.Thedecreaseresultedpartlyfromalowernettotalofnewlyaccepted
securitiesandfromredemptionsduetomaturity.Exchangeratemovements
alsoreducedthetotalvolumeinSwissfrancs.Furthermore,collateralinfor-
eigncurrenciestoavalueofaboutCHF275billionwasremovedfromthelist
ofcollateraleligibleforSNBrepos,sinceitnolongermettheminimumre-
quirements.TheSNBdidnotmodifyitspolicywithregardtoeligiblecollateral
in2010.
Collateralinoreigncurrencies
Stringentrequirementsrelatingtocollateral
Standardortheinterbankrepomarket
VolumeocollateraleligibleorSNBrepos
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2.7 RepoauctionsinUSdollars
TheSNBstartedconductingUSdollarrepoauctionsinDecember2007
aspartofacoordinatedactioninvolvingseveralcentralbanks.TheUSFederal
ReservesuppliedtheSNBwithUSdollarsonthebasisofaswapagreement.
TheSNBsrepotransactionsinUSdollarswerecoveredbycollateraleligible
forSNBrepos.Whilethesemeasureshavenoeffec tonthesupplyofmoneyin
Swissfrancs,theyenabletheSNBscounterpartiestogaineasieraccesstoUS
dollarliquidity.AttheendofJanuary2010,theSNBdiscontinueditsUSdollarrepo
transactions after the swap agreement with theFederalReserve had in
concertwiththeother central banks involved no longer been renewed.
FollowingthereactivationoftheswapagreementinMay,theSNBresumed
theassociatedauctionsandofferedweeklyrepotransactionsinUSdollars
withatermofsevendaysuntilDecember.Therewasstillnodemandforthis
nancinginstrument.
2.8 SNBUSDBillsOn16February2009,inaccordancewithart.9NBA,theSNBbegan
toissuedebtcerticatesinUSdollars(SNBUSDBills)inadditiontoitsown
debtcerticatesinSwissfrancs(SNBBills).TheseUSdollardebtcerticates
wereusedforthenancingoftheSNBsloantothestabilisationfund(cf.
chapter6.7).
Theoutstanding volume ofSNB USD Bills reached a peak value of
USD20billioninOctober2009.Alargeproportionwasissuedwithatermof
168days.In2010,therewere39issuesofSNBUSDBillswithtermsof28,
84or168days.Asaresultofreducedrenancingneedsonthepartofthe
stabilisationfund,theissuanceofSNBUSDBillswasdiscontinuedinJune.Thelastissuewascarriedouton21June,andthelastSNBUSDBillswere
redeemedon8December2010.
Nomoredemandordollarliquidity
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3.3 Banknotes
Pursuanttoart.7oftheFederalActonCurrencyandPaymentIn-
struments(CPIA),theSNBissuesbanknotescommensuratewithdemandfor
paymentpurposesandtakesbackanybanknoteswhichareworn,damagedor
surplustorequirementsduetoseasonaluctuations.Italsodeterminesthe
denominationanddesignofthenotes.Particularattentionispaidtotheir
security.Giventhespeedatwhichcounterfeitingtechnologyadvances,the
effectivenessofthesecurityfeaturesonthebanknotesmustbecontinuouslycheckedand,ifnecessary,adapted.Incooperationwiththirdparties,theSNB
developsnewsecurityfeaturesthatmakeitpossibletoupdatetheexisting
featuresoncurrentbanknotesandtobetterprotectnewbanknotes.
In 2010, banknote circulation averaged CHF 47.1 billion, which is
slightlyabovethepreviousyearsaverageofCHF45.3billion.Ofthebank-
notes(mainlytheCHF1,000note)forwhichtherewasadditionaldemandin
autumn2008asaresultofthenancialcrisis,onlyasmallportionhavethus
farreturnedtotheSNB.Intheyearunderreview,thetotalnumberofnotes
incirculationaveraged325.1million(2009:315.6million).
In2010,theSNBput75.2millionfreshlyprintedbanknotes(2009:
136.7million)withanominalvalueofCHF5.1billion(2009:CHF13.6billion)intocirculation,anddestroyed77.3milliondamagedorrecallednotes(2009:
79.9million)withanominalvalueofCHF4.8billion(2009:CHF5.5billion).
Approximately4,400counterfeitbanknotes(2009:4,900)werecons-
cated in Switzerland in 2010. The SNBs ofces discovered 61 counterfeit
notes(2009:84).Byinternationalstandards,14seizedcounterfeitnotesper
millionSwissfrancnotesincirculation(2009:16)isamodestgure.
Mandate
Banknotesincirculation
Issueanddisposal
Countereits
Number of banknotes in
circulation
In millions
CHF 10s: 66
CHF 20s: 72
CHF 50s: 41
CHF 100s: 84
CHF 200s: 34
CHF 1,000s: 28
Annual average for 2010
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In the course o the project on developing a new banknote series, it has
become clear that the new security eatures being built into the banknotes
or the frst time could be enhanced by urther development. The SNB there-
ore decided to postpone the issue date o the new banknote series, with the
frst denomination o the new series expected to be issued towards the end
o 2012. Given that the high standard o security o the banknote series
currently in circulation is unchanged, the supply o high-quality banknotes to
the economy remains guaranteed.
3.4 Coins
The SNB is entrusted by the Conederation with the task o coin circu-
lation. Its role is defned in art. 5 CPIA. It takes over the coins minted by
Swissmint and puts into circulation the number required or payment purposes.
Coins that are surplus to requirements are taken back against reimbursement
o their nominal value. The SNBs coinage services are not remunerated, as
they constitute part o its mandate to supply the country with cash.
In 2010, the value o coins in circulation averaged CHF 2,719 million(2009: CHF 2,664 million), which corresponds to 4,766 million coins (2009:
4,661 million).
Development of newbanknote series
Mandate
Coin circulation
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The system encompassing sight deposits and SIC, which is steered by
the SNB, is a key element in the Swiss fnancial market inrastructure. This
inrastructure is run by SIX Group Ltd. Aside rom SIX Interbank Clearing Ltd,
the fnancial holding company also includes the Swiss stock exchange (SIX
Swiss Exchange Ltd), SIX SIS Ltd (which operates the securities settlement
system SECOM) and SIX x-clear Ltd (the central counterparty). It is through
SIX Interbank Clearing Ltd and SIX SIS Ltd that the SNB settles the money
market transactions with which it supplies the money market with liquidity.
It is thus not just in the area o payments that SIX Group Ltd operates inra-structures that are important or the ulflment o the SNBs mandate.
4.2 Cashless payments in 2010
At the end o 2010, there were 377 participants in SIC (2009: 376).
Every day, approximately 1.5 million transactions at a value o CHF 202 billion
were settled. Compared to the previous year, this represents a 2.2% increase
in the number o transactions and a 9.9% decrease in the value o transac-
tions. Peak days saw up to 5.1 million transactions being settled, with valuesas high as CHF 425 billion.
Key gures on the SIC system
2006 2007 2008 2009 2010
Transactions (in thousands)
Daily average 1 264 1 421 1 468 1 508 1 542
Peak daily value or year 3 844 4 167 4 350 4 788 5 056
Values (in CHF billions)
Daily average 179 208 229 225 202
Peak daily value or year 318 337 343 411 425
Average value per transaction (in CHF thousands)
141 146 156 149 131
Average liquidity (in CHF millions)
Sight deposits at end o day 5 217 5 470 8 522 57 886 50 489
Intraday liquidity 7 070 8 828 9 515 6 362 7 211
SIX Group as operator of thenancial market infrastructure
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Apart rom banks, participants alling in the category other fnancial
market participants also use SIC, including companies that operate commer-
cially on the fnancial markets. They include PostFinance, securities dealers
and institutions that play a signifcant part either in payment transact ions (at
present, fve cash processing institutions) or in the implementation o mon-
etary policy. All participants in SIC must hold an SNB sight deposit account.
Conversely, not all holders o an SNB sight deposit account are connected to
SIC. The number o holders o an SNB sight deposit account as at 31 December
2010 was 491 (2009: 485), and o these, 377 participated in SIC (2009: 376).The majority o SIC participants are domiciled in Switzerland (259, as in the
previous year), and o these, 19 (2009: 15) belong to the category other fnan-
cial market participants. Since the list o participants eligible or monetary
policy operations was increased at the beginning o 2010, fve insurance
companies have joined SIC, and have mostly settled repo transactions through
the system.
4.3 TARGET2-Securities
In 2008, the European Central Bank (ECB) committed to building
TARGET2-Securities (T2S), a securities settlement system. T2S is intended to
either totally or partially replace the existing domestic settlement systems o
central securities depositories and to substantially reduce the cost o cross-
border securities settlement in Europe. T2S is scheduled to go live in 2014.
The new European securities settlement system will also be important
or the Swiss fnancial centre. In 2009, SIX SIS Ltd in agreement with the
SNB signed a memorandum o intent with regards to its participation in T2S.
This would reduce the cost to fnancial market participants in Switzerland o
settling securities transactions in euros.
T2S is capable o handling multiple currencies, and the ECB is inter-ested in increasing the number o currencies used in its system. The SNB is
currently clariying together with the SIX Group and the banks whether
T2S would be advantageous or settling securities transactions in Swiss
rancs. A decision on the inclusion o the Swiss ranc in T2S is expected by
mid-2011.
Other participants incashless payments
T2S in the euro area
Participation of SIX SIS Ltd
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The SNBs comparatively long-term investment horizon is taken into
account in all o these risk analyses. To manage and assess credit risk, inor-
mation rom major rating agencies, market indicators and in-house analyses
are used. Credit limits are set on the basis o this inormation, and adjusted
whenever the assessment o counterparty risk changes. Concentration and
reputational risks are also actored in when determining risk limits. Risk indi-
cators are aggregated across all investments. Compliance with the guidelines
and limits is monitored daily. Quarterly risk reports or the attention o the
Governing Board and the Bank Councils Risk Committee document the resultso risk management activities.
5.3 Changes in and breakdown o assets
At the end o 2010, the SNBs balance sheet total was just under
CHF 270 billion, or CHF 63 billion higher than one year earlier (CHF 207 bil-
lion). The increase is due to the growth in currency reserves, which rose
rom CHF 112 billion to CHF 252 billion in the space o a year. This was mainly
attributable to oreign exchange purchases. In addition, there were valuationgains on gold in the order o CHF 6 billion. Holdings o Swiss ranc-denominated
assets, by contrast, decreased. Claims rom repo transactions, which at end-
2009 had stood at CHF 36 billion, declined to zero, while Swiss ranc bond
holdings ell rom CHF 7 billion to CHF 4 billion. Finally, the loan to the stabil-
isation und also decreased. At the end o 2010, it amounted to CHF 12 billion,
as compared to CHF 21 billion one year previously. The loan is denominated in
various currencies, with interest being paid at 250 basis points above the
one-month Libor or the currency concerned.
At the end o 2010, the bond portolios in the oreign exchange reserves
and the Swiss ranc bond portolio contained government and quasi-govern-
ment bonds as well as bonds issued by supranational organisations, localauthorities, fnancial institutions (mainly covered bonds) and other companies.
In the case o oreign exchange reserves, a limited number o secured and
unsecured short-term placements were also made at banks. The equity port-
olios were managed on a purely passive basis, with broad market indices in
euros, US dollars, yen, pounds sterling and Canadian dollars being replicated.
A small portion o gold holdings was used in the orm o secured gold lending
transactions at year-end.
In the case o oreign exchange reserves, exchange rate and interest
rate risks were managed using derivatives such as interest rate swaps, interest
rate utures, orward oreign exchange transactions and oreign exchange
options. In addition, utures on equity indices were used to manage the equityinvestments.
Changes in assets
Debtor categories andinstruments
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Breakdown of foreign exchange reserves and Swiss franc bond
investments at year-end
2009 2010
Foreignexchangereserves
CHF bonds Foreignexchangereserves
CHF bonds
Currency allocation, incl. derivatives positions
CHF 100% 100%
USD 30% 25%
EUR 58% 55%
JPY 5% 10%
GBP 5% 3%
CAD 2% 4%
Other (DKK, AUD, SEK, SGD) 3%
Investment categories
Investments with banks 0% 0%
Government bonds1 84% 19% 83% 35%
Other bonds2 9% 81% 6% 65%
Equities 7% 11%
Breakdown of bonds
AAA-rated 84% 82% 82% 78%
AA-rated 13% 11% 14% 21%
A-rated 2% 3% 3% 1%
Other 1% 4% 1%
Bond duration (years) 3.3 5.3 4.0 5.6
1 Government bonds in own currency; in the case o CHF investments, also bonds issued by Swisscantons and municipalities.
2 Government bonds in oreign currency as well as bonds issued by oreign local authorities andsupranational organisations, covered bonds, corporate bonds, etc.
Breakdown of
SNB assets
In percent
Foreign exchange reserves 76
Gold reserves 16
Securities in Swiss francs 1
Loan to stabilisation fund 5
Monetary institutions 2
Total: CHF 270 billionAt year-end 2010
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2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
Gold
USD
EUR
GBP
Other
CAD
JPY
SDR
In percent
Breakdown of currency reserves
0
10
20
30
40
50
60
70
80
90
100
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6 Contribution to fnancial system stability
6.1 Background
Art. 5 para. 2 (e) o the National Bank Act (NBA) coners upon the
Swiss National Bank (SNB) the mandate o contributing to the stability o the
fnancial system. Financial stability means that fnancial system participants,
i.e. fnancial intermediaries (banks) and inrastructures (payment and secur-
ities settlement systems) can perorm their unctions and are able to withstand
potential disturbances. It is an important prerequisite or economic develop-
ment and eective monetary policy implementation. As its contribution to
fnancial stability, the SNB analyses sources o risk to the fnancial system,
oversees systemically important payment and securities settlement systems, and
participates in creating the operating ramework or the Swiss fnancial centre.
The SNB works together with the Swiss Financial Market Supervisory
Authority (FINMA) and the Federal Department o Finance (FDF) to create a
regulatory environment that promotes stability. The SNB addresses the issue
mainly rom a systemic perspective, and its ocus is thereore on the macroeco-
nomic and macroprudential aspects o regulation. For its part, FINMA is
responsible, among other things, or monitoring o specifc institutions, i.e.
microprudential oversight. In the oversight o cross-border payment and
securities settlement systems, the SNB liaises closely with oreign authorities.
6.2 Main activities in 2010
In 2010, a major ocus o the SNBs activities in the area o fnancial
stability was its involvement in the commission o experts appointed by the
Swiss Federal Council to examine ways o limiting the economic risks posed by
large companies. The commission investigated how to alleviate the too big toail problem. Too big to ail describes the constraint imposed by the act
that, or systemic reasons, very large, or nationally and internationally inter-
connected banks cannot be allowed to ail, and thus enjoy a de acto state
guarantee.
At international level, within the ramework o the Basel Committee
on Banking Supervision and the Financial Stability Board (FSB), the SNB par-
ticipated in eorts to reorm banking regulation. In addition, the intensifed
monitoring o the Swiss banking system introduced during the fnancial crisis
was urther expanded, with particular attention being paid to the mortgage
market.
Mandate
Cooperation withFINMA and FDF
Attention focused ontoo big to fail problem
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In 2010, the business audit commissions o the National Council and
the Council o States published their report on the conduct o the authorities
during the fnancial crisis. The business audit commissions then invited the
SNB to comment on the recommendations. In a response dated December
2010, the SNB reviewed its mandate and its set o instruments in the area o
fnancial stability. It judged that the mandate set down in art. 5 para. 2 (e)
NBA was appropriate and sufciently precise. In contrast, it concluded that
its own set o preventive instruments needed to be strengthened in three
areas: frst, it should be ensured that the SNB has timely access to all relevantinormation required or an assessment o fnancial stability. Second, its right
to participate in drawing up regulations that are relevant or fnancial stabil-
ity should be clarifed and strengthened. Third, the SNB should be given powers
as regards the implementation o regulations with a direct bea