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Investment and risk control process

The National Bank Act (NBA) defines the SNB’s responsibilities and describes in detail its mandate with regard to asset management.

Bank Council and Risk Committee

The Bank Council is charged with the integral oversight of the investment and risk control process. It assesses the principles of the process and monitors compliance with them.  The Risk Committee – which is composed of three members of the Bank Council – supports the Bank Council in this task. It monitors risk management, in particular, and evaluates the governance of the investment process. Internal risk management reporting is addressed to the Governing Board and the Risk Committee.

Governing Board

The Governing Board defines the principles of the investment policy. This involves matters concerning the balance sheet structure, investment targets, specification of the investment universe, requirements regarding investment strategy and the associated risk tolerance, as well as the design of the risk control process. In particular, the Governing Board lays down in detail the requirements with regard to the security, liquidity and return of investments, as well as the eligible currencies, investment categories, instruments and borrower categories. The Governing Board decides on the composition of the currency reserves and other assets, and defines the foreign currency investment strategy. The investment strategy covers the allocation of foreign currency investments to different investment categories and currencies, and determines the scope for active management at operational level.

Operational level

An internal Investment Committee determines the tactical allocation on an operational level. Within the strategically prescribed range, it adjusts the currency allocation, the duration or the amount allocated to different investment categories. In this way, it adapts allocation to suit changing market conditions. The management of the individual portfolios is the responsibility of Portfolio Management. The majority of assets are managed internally. Portfolios from the Asia-Pacific region are managed by internal SNB portfolio managers in the Singapore branch office. Its activities, especially trade and portfolio management, are fully integrated into the investment and risk control process in Switzerland. External asset managers are used to benchmark internal portfolio management and obtain efficient access to new investment categories. At operational level, responsibilities for monetary policy and investment policy are organised in such a way as to avoid conflicts of interest.

Risk management

The most important element for managing absolute risk is broad diversification of investments. Risk is managed and mitigated via a system of reference portfolios (benchmarks), guidelines and limits. All relevant financial risk associated with investments is identified, assessed and monitored continuously. Risk measurement is based on standard risk indicators and procedures. In addition to these procedures, sensitivity analyses and stress tests are carried out on a regular basis.

The SNB’s comparatively long-term investment horizon is taken into account in all of these risk analyses. To assess and manage credit risk, information from major rating agencies, market indicators and in-house analyses are used. Credit limits are set on the basis of this information, and adjusted whenever the assessment of counterparty risk changes. To mitigate counterparty risk, the replacement values of derivatives are usually collateralised by securities. Concentration and reputational risks are also factored in when determining risk limits. Risk indicators are aggregated across all investments. Compliance with the guidelines and limits is monitored daily. The risk analyses and results of risk management activities are submitted to the Governing Board and the Bank Council’s Risk Committee in quarterly risk reports. In addition, the annual risk management report is submitted to the Bank Council.