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.

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.

The Investment Committee, an internal body, decides on the tactical allocation of the foreign currency investments at operational level. It may deviate from the strategy within the prescribed ranges set by the Governing Board for currency weightings, bond durations and allocations to the various asset classes. Portfolio Management ultimately manages the individual portfolios. The vast majority of assets are managed internally. The Asia-Pacific portfolios are managed by SNB portfolio managers in the Singapore branch office. Its activities, especially trading 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 asset classes. At operational level, responsibilities for monetary policy and investment policy transactions are organised in such a way as to avoid conflicts of interest.

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.