Complete Annual Report

96th Annual Report 2003 Goals and responsibilities of the Swiss National Bank Mandate The Swiss National Bank conducts the country’s monetary policy as an independent central bank. In so doing, it creates an appropriate environment for economic growth. The National Bank is obliged by the Constitution and statute to act in accordance with the general interests of the country. Its policy goal is price stability, while taking into account the economic situation. Price stability Price stability is an important precondition for growth and prosperity. Inflation and deflation are inhibiting factors for the decisions of consumers and producers; they disrupt economic development and put the economically weak at a disadvantage. The National Bank equates price stability with a rise in the national consumer price index of less than 2% per annum. In formulating monetary policy, it orients itself to an inflation forecast. Ensuring the supply of cash The note-issuing privilege is vested in the National Bank by law. Through the intermediary of the commercial banks and Swiss Post, it supplies the economy with banknotes that meet high standards with respect to quality and security. The Bank is also entrusted by the Confederation with the task of coin distribution. Cashless payment transactions In the field of cashless payment transactions, the National Bank provides services for payments between banks. These payments are settled via the Swiss Interbank Clearing (SIC) system. Investment of international reserves The National Bank manages international reserves (gold, foreign exchange, international payment instruments). They ensure confidence in the Swiss franc, help to prevent and overcome crises and may be utilised for interventions in the foreign exchange market. Stability of the financial system There are a number of authorities that contribute to the stability of the financial system. The Swiss Federal Banking Commission supervises the individual banking institutions for the protection of creditors. The National Bank’s contribution is to conduct a stability-oriented monetary policy and to ensure the provision of liquidity for the Swiss franc money market. Within the framework of this task, it takes into account any potential threat to the financial system. Furthermore, it helps to shape the operating framework for the financial centre. Statistics The National Bank compiles various statistical data, notably banking statistics and the balance of payments. Tasks on behalf of the Confederation The National Bank advises the federal authorities on issues of monetary policy. It also acts as banker to the Confederation. Swiss National Bank 96th Annual Report 2003 Contents 4 Preface 6 Review of economic developments 7 1 International developments 7 1.1 Economic development 12 1.2 Monetary policy 12 1.3 Fiscal policy 14 1.4 Foreign exchange markets 16 1.5 Capital and credit markets 18 1.6 Banks and other financial institutions 19 2 Switzerland 19 2.1 Economic development 28 2.2 Fiscal policy 30 2.3 Capital and credit markets 33 2.4 Banks and other financial institutions 34 Monetary policy of the Swiss National Bank 35 1 Concept 40 2 Implementation 44 Legal framework 45 1 Total revision of the National Bank Law 46 2 Message concerning the Federal Law on international monetary aid 47 3 Appropriation of 1,300 tonnes of National Bank gold – new constitutional basis 48 4 Supplementary agreement on the distribution of income from the SNB’s free assets 50 Other central bank functions 51 1 Investment of assets 51 1.1 Basis 52 1.2 Monetary foreign exchange reserves 54 1.3 Swiss franc bonds 54 1.4 Gold lending 55 1.5 Free assets 56 1.6 Risk control and overall performance 58 2 Payment transactions 58 2.1 Basis 58 2.2 Cashless payment transactions 60 2.3 Provision of currency 62 3 Services on behalf of the Confederation 63 4 Cooperation with federal agencies 63 4.1 Integrated financial market supervision 64 4.2 Reform of the securities law 64 4.3 Cooperation with the Federal Banking Commission 65 5 International cooperation 65 5.1 Participation in the International Monetary Fund 66 5.2 Participation in the Group of Ten 66 5.3 Cooperation with the Bank for International Settlements 67 5.4 Balance of payments support 68 5.5 Technical assistance 68 5.6 Study Center Gerzensee 69 6 Stability and oversight of the financial system 71 7 Statistics 71 7.1 Basis 71 7.2 Statistical publications 72 7.3 Banking statistics committee 72 7.4 Balance of payments: group of experts 73 7.5 Collaboration with domestic and foreign agencies 74 Structure and organisation of the National Bank 75 1 Information for shareholders 76 2 Organisation 78 3 Staff and resources 80 4 Changes in the supervisory authorities and staff 84 Financial report 85 1 Income statement for the year 2003 86 2 Balance sheet as of 31 December 2003 88 3 Notes to the accounts as of 31 December 2003 88 3.1 Explanatory notes on business activities 88 3.2 Accounting and valuation principles 90 3.3 Notes to the income statement and balance sheet 110 3.4 Notes regarding off-balance-sheet business 112 4 Proposals of the Bank Council to the Annual General Meeting of Shareholders 113 5 Report of the Auditing Committee to the Annual General Meeting of Shareholders 114 Chronicle and press releases on monetary policy 115 1 Chronicle 115 2 Press releases on monetary policy 118 Miscellaneous information 119 1 Supervisory and executive bodies 126 2 Organisational chart 128 3 Publications 130 4 Addresses of the head offices and branches The figures in the income statement, balance sheet and tables are rounded; the total may therefore deviate from the sum of individual items. The figure 0.0 is a rounded value representing less than half of the unit used. A dash (–) in place of a number stands for zero (nil). Preface Ladies and Gentlemen The hopes held at the beginning of 2003 of the economy gathering steam were initially dashed once again. During the course of the year, however, there were mounting signs of a pickup. This was particularly the case in the United States. While Japan started to emerge from years of stagnation, Europe ended the year on an optimistic note as well, with the prospect of an economic revival. The disappointing performance of the economy in the first half of the year prompted some major central banks to further relax their monetary policy. In various countries, short- term interest rates consequently sank to lows not seen in years. In Switzerland, call money rates even trended towards zero. Stock markets initially recorded further price losses in the first quarter before recovering significantly as the year progressed. The situation on the financial markets as well as in the banking and insurance industries thus stabilised. During 2003, the US dollar depreciated further. From the vantage point of the Swiss export industry, though, the strengthening of the euro against the Swiss franc was more significant, and the export-weighted exchange rate index of the Swiss franc weakened. In October 2003, the Federal Assembly passed the total revision of the National Bank Law (NBL) with a large majority and with hardly any modifications to the original bill of the Federal Council. A referendum was not sought, and the new National Bank Law is expected to enter into force on 1 May 2004, one day after the Annual General Meeting. The National Bank will then have a lean central bank law that is compatible with international standards and oriented to the requirements of contemporary corporate governance. SNB 4 In the past year as well, political discussion continued on the future appropriation of the proceeds from the sale of 1,300 tonnes of gold (free assets) no longer required for monetary policy purposes. As an interim solution, the Federal Department of Finance and the National Bank concluded, on 12 June 2003, a supplementary agreement on the distribution of income from the free assets. This agreement will remain effective until different legislation enters into force. As a consequence, the National Bank’s CHF 2.5 billion annual profit distribution to the Confederation and the cantons (pursuant to the agreement of April 2002) will be increased by an additional CHF 300 million in spring 2004. With gold sales continu- ing, this additional amount to be distributed will reach CHF 500 million in spring 2006. After expiry of the main agreement in 2012, the profit distribution will fall significantly in line with the Bank’s long-term earnings potential. We wish to thank the bank authorities as well as the National Bank’s staff for their valuable support over the past year. Berne, 5 March 2004 Hansueli Raggenbass Jean-Pierre Roth President of the Bank Council Chairman of the Governing Board SNB 5 Review of economic developments SNB 6 1 International developments 1.1 Economic development After two years characterised by economic problems and geopolitical tension, the situation for the world economy improved in 2003. The US economy, Economic upswing which was steadily accelerating on the back of expansive monetary and fiscal policies, supplied major growth stimuli. An upswing in Asia’s emerging economies (notably China) also exerted a positive effect on the global economy. The dynamic growth in this region spread to Japan, which finally emerged from its lengthy period of stagnation. Economic developments in Europe were rela- tively subdued, though in the second half of the year this region too began to experience a recovery. At the beginning of the year, the prospect of a rapid economic upturn had seemed remote. The impending war in Iraq had already cast its shadow over Gloomy prospects at the start the economy at the end of 2002 and had started pushing the oil price sharply of the year upwards.

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