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Swiss National Bank's Philipp Hildebrand

Zurich, Switzerland (GenevaLunch) – Philipp Hildebrand has been the chairman of the Swiss National Bank’s three-man governing board since 1 January 2010. In an interview with Geneva’s Le Temps published 17 January, he expounds on several of the issues facing the central bank today.

Relatively upbeat on Swiss economy

Hildebrand is moderately optimistic about Switzerland’s economic prospects for the coming year. The pace of inflation will determine the rate at which monetary policy is normalized over the coming months, he says. As to the risk of inflation getting out of  hand, Hildebrand says that the independence of the world’s central banks is the best insurance against the temptation by governments to inflate their way out of huge public debts.

Banks should compare their bonus policies to their competitors’

It is coming up to bonus season at banks, and the size of bonuses is already causing an outcry in some countries. Central banks’ only input into commercial banks’ remuneration policies is to guard against those policies becoming a risk to the stability of the financial system, according to Hildebrand. Significant changes to reduce those risks are in place or being put into place. One of these is to oblige banks to compare their policies to those of their peers and competitors.

Bundle private and investment banking: Hildebrand

In 2009, Hildebrand floated the notion that the big universal banks should separate their private banking business from their investment banking  in order to reduce the risks the latter posed to the former. He has changed his opinion on this, and argues that bundling the two businesses together diversifies the bank’s risks and reduces its exposure to risk. Swiss banks are the world’s most important wealth managers, and many of the private banks’ clients are also owners of businesses. Providing investment banking opportunities to these clients as well is a lucrative source of income, especially since much of investment banking’s activities is fee-based and does not involve investing the bank’s own capital.

Hildebrand reckons that the imposition of a leverage ratio on banks will go a great way towards reducing systemic risk in the financial system by limiting the amount of capital banks can lend to a multiple of their equity capital. The idea was recommended by the  Basel Committee of Banking Supervision in December, and Hildebrand says neither of the two big Swiss banks opposes it.

Links to other sites: Le Temps, SNB