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During the time under its outgoing president, the National Bank has succeeded in ensuring price stability. It has thus fulfilled its mandate. However, its monetary policy has led to a significant expansion of the balance sheet. This is a liability.
If Thomas Jordan tomorrow Thursday for the last time the monetary policy decision of the Swiss National Bank (SNB), the attention of the financial markets will be focused on whether the key interest rate will be reduced by a quarter of a percentage point as expected, thus continuing the series of gentle interest rate cuts since March. A big step à la US Federal Reserve of half a percentage point is not entirely out of the question; however, it would require some explanation, especially since the Americans only started the reduction cycle last week.
The SNB’s inflation forecast and its assessment of the economic outlook will also be the focus of attention. And the media conference will also be a kind of handover for the public. Jordan is leaving the SNB, and with it the monetary policy decision-making body, at the end of September. The new President of the Governing Board will be the former Vice President Martin Schlegel. Antoine Martinpreviously a simple member of the Board of Directors, will take over as Vice-Chairman, and Petra Tschudinpreviously deputy member of the Board of Directors, is a new member of the Board.
Track record: monetary value kept stable and crises cushioned
Jordan’s departure marks the end of an era. He joined the SNB in 1997, has been a member of the Governing Board since 2007 and has headed it since 2012, when he was suddenly forced to take over the helm following the abrupt departure of his predecessor and the turbulence that came with it.
If the SNB’s mandate, enshrined in the National Bank Act, to ensure price stability while taking economic developments into account is taken as a benchmark, it can be given a good report. Under his aegis, the SNB has mostly managed to keep inflation within the range it defines as compatible with price stability – an average annual inflation rate in the national consumer price index of less than 2 percent, but not negative.
What did Jordan want, could and was allowed to do during the CS crisis?
From an international perspective, Switzerland also performs excellently in terms of monetary stability and inflation, and during Jordan’s term in office the SNB has also managed quite well to limit the negative effects of various crises (the causes of which were mostly, but not always, foreign) on the local economy.
Assessing the SNB’s performance during the Credit Suisse (CS) crisis is more difficult. Was there really no better solution than the merger? Using the ELA+ credit facility that it conjured up, the SNB effectively granted the failing bank a blank credit of 100 billion Swiss francs, thereby violating a principle already formulated in the 19th century by the British economist Walter Bagehot and is often quoted in central bank circles.
Favorable structural factors
However, it should be remembered here that the SNB is only one of several cooks when it comes to financial stability and that, as is well known, the Federal Council has the final say, especially in crises – unlike monetary policy, where the Governing Board bears sole responsibility.
Of course, one can – as the independent economist Adriel Jost in the summer in his finews.ch included in the analysis – ask whether, for example, the fact that Switzerland has been hit below average by the recent wave of inflation is due less than generally assumed to the SNB’s monetary policy but to structural factors such as sensible fiscal policy and a more favourable energy mix compared to other countries.
Central banker with heart and soul
When assessing the Jordan era, it must also be remembered that the SNB is, firstly, an institution with experience accumulated over many decades and not a one-man show. The SNB is deliberately structured in such a way that the institution’s track record does not necessarily have to match that of the president.
Secondly, the President is only primus inter pares in the Board of Directors, ie one of three equal votes. Jordan, however, is a central banker through and through, has served in all three departments, knows the Bank and its history inside and out, is not only an experienced monetary policymaker but also a knowledgeable monetary theoretician. For this reason, he also had a special position on the Board – this would not have changed much if, as is sometimes suggested, there were more members on it.
No mistakes, institution consolidated
But regardless of which perspective you take, Jordan’s track record is impressive. With his unpretentious manner, he has persistently trained the SNB to always and everywhere place the fulfilment of its legal mandate at the centre of its actions and has communicated this to the outside world in a sober and credible manner. And even if favourable structural factors may have contributed to the success, it is Jordan’s undisputed achievement that the SNB did not make any serious monetary policy mistakes during his long term in office and that he is handing over a stable institution to his successor.
However, Jordan’s legacy is also the massive swell of the central bank’s balance sheet during his time, which is sometimes referred to in financial circles as the elephant in the room. Until the financial crisis, the rule was that the SNB’s balance sheet total was around 100 billion francs, but by mid-2024 it had reached 823 billion francs – a reflection of the massive foreign exchange purchases with which Swiss monetary policymakers tried to slow the appreciation of the domestic currency for years.
