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Balance Sheet: Liability or Asset?

In a recent farewell interview with the «NZZ», Jordan rejected the notion that the enlarged balance sheet represents a liability, stating, «This is not a liability, but the result of 15 years of monetary policy. The balance sheet expansion was crucial to Switzerland's resilience during crises.» He acknowledged, however, that some view the balance sheet as a liability, while others see it as an asset.

While there may be debates over whether the SNB conducted its monetary policy in a balance-sheet-conscious manner or intervened optimally in currency markets, it is clear that the equity ratio, not the size of the balance sheet, is key to the institution's financial solidity. At around 14 percent (as of June), the SNB’s equity ratio is historically low, which the bank itself acknowledges. The SNB has increased allocations to reserves in recent years to strengthen its capital buffer.

Financial, Political, and Monetary Risks

The SNB’s swollen balance sheet carries financial, political, and monetary risks. On the financial side, fluctuations in exchange rates, interest rates, and stock prices present significant risks given the SNB’s large holdings of foreign currencies, bonds, and gold. Politically, the balance sheet's size and apparent wealth could trigger demands from the political left for its use. However, Jordan stood firm, ensuring that financial pressures never influenced monetary decisions.

As former SNB Vice President Jean-Pierre Danthine noted in 2015, the real monetary risk lies in large balance sheets limiting future monetary flexibility. The more the SNB relies on balance sheet expansion as a policy tool, the harder it becomes to use that tool in the future.

Ultimately, the SNB’s mandate is to ensure price stability, not accumulate assets or maximize profits. The balance sheet, combined with the low equity ratio, remains both a legacy of Jordan’s monetary policy and a challenge for the SNB going forward.