Who does the SNB’s profit belong to?
The SNB is no ordinary joint-stock company. Although it does generate profits and losses, the fulfilment of its statutory tasks takes precedence over its economic success.
For a conventional company, profits are an important prerequisite for long-term success. The SNB’s goal, by contrast, is not to generate profit. It has another mandate: It must ensure price stability in Switzerland, while taking due account of economic developments. This task always has highest priority. This is why the SNB can find itself having to take monetary policy decisions that may have a negative impact on its annual result. If the SNB fulfils its mandate well, however, this benefits both the general population and companies.
How does the SNB earn money?
The SNB has a number of sources of income. Traditionally, it earns money through the issuance of banknotes. This is because the costs of manufacturing a banknote are only a fraction of its printed value. However, the largest share of the SNB’s profits comes from other sources. These include, primarily, earnings on the currency reserves, which comprise foreign currency bonds and equities as well as gold. These earnings depend on developments in the foreign exchange and capital markets and can fluctuate strongly.
Good to know
Seigniorage is the income that central banks derive from the note-issuing privilege. The SNB, too, earns seigniorage because it can finance itself cost-effectively through the issuance of banknotes and via the sight deposits held by commercial banks and, in turn, use the funds to invest over the long term at higher returns.
What happens to the profits?
If the SNB’s equity capital is large enough, it distributes two-thirds of its profit to the cantons and one-third to the Confederation. In addition, shareholders receive a fixed dividend. The maximum annual profit distribution to the Confederation and the cantons is limited and governed by a profit distribution agreement between the Federal Department of Finance and the SNB. Any undistributed profit is allocated to the reserves and can be used for distributions in subsequent years as long as there is enough equity capital.
Can the SNB’s equity capital become negative?
A large loss can cause the SNB’s equity capital to temporarily fall into negative territory. While this condition would be life-threatening for a normal company, the SNB remains able to act. It can continue to implement its monetary policy decisions and fulfil its monetary policy mandate. A negative equity situation, however, can also be problematic for a central bank because this can jeopardise its credibility and independence.
