Swiss Finance: Capital Markets, Banking, and the Swiss Value Chain

CHAPTER 5

Swiss National Bank and Monetary Policy

INTRODUCTION

Central banks assume a key role in supporting well-functioning capital markets. By targeting price stability, central banks contribute to an efficient allocation of resources and thereby support economic growth. In addition, by providing market participants with liquidity, central banks help smooth peaks in money supply and demand and strengthen the stability of the financial system. They also act as lenders of last resort and may intervene with a range of actions in situations of financial crises. Apart from these very essential functions, central banks furthermore provide the financial markets with a number of banking services that facilitate financial transactions of many types for the entire economy.

OVERVIEW OF THE SWISS NATIONAL BANK

The Swiss National Bank (SNB or the Bank), Switzerland's central bank, was founded in 1907 as a special-statute, quasi-public, joint-stock company with specific obligations and competences related to the nation's financial stability and soundness.1 Its late appearance relative to other European central banks was due to moderate domestic credit demand and the lack of uniform currency laws. Switzerland's first federal Constitution in 1848 gave the central government authority to administer the Swiss currency.2 Thereafter, the demand for funds increased rapidly, but, nevertheless, it took another half century until a central bank was established. In 1891, the federal government obtained ...