On Monday, the Swiss National Bank disclosed its annual loss of 132.5 billion Swiss francs ($141.54 billion), which is consistent with the provisional estimates that it released in January.
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This substantial loss, which is the largest in the central bank’s 115-year history, was primarily due to a significant decrease in the value of the SNB’s investments caused by declines in the bond and stock markets last year.
Additionally, the strengthening of the Swiss franc had an unfavorable effect on the SNB’s holdings and returns from foreign investments when they were converted back into Swiss francs.
This unfortunate outcome, following a profit of 26 billion francs in 2021, implies that the SNB will not make any payout to the Swiss central or regional governments or dividends to investors for only the second time since its establishment in 1907.
Most of the loss can be attributed to the 131.5 billion francs that were lost on foreign currency positions, with bond holdings losing 72 billion francs in value and a share portfolio worth 41 billion francs less.
The SNB’s reported loss has wiped out its distribution reserve of 102.5 billion francs, resulting in a net loss of 39.5 billion francs after the provision allocation has been taken into account.
The central bank is set to give its next monetary policy update on March 23, but it has refrained from commenting on how the loss may affect its future monetary policy.
Despite the significant losses, analysts do not believe that this would have a substantial impact on the SNB’s monetary policy. The SNB still has 66 billion francs in equity, despite the considerable losses.
According to UBS economist Alessandro Bee, even if equity were entirely wiped out, this would not change monetary policy in the short term as the SNB could operate without equity. He went on to say that only in the event of a prolonged period of negative equity would he see an impact on monetary policy. However, even after the significant loss last year, we are far from such a scenario.
