The acclaimed 12-year run of Switzerland’s retiring central bank governor was tainted by autocratic processes enabled by the opaque decision-making structures of the Swiss National Bank, three prominent economists have said.
Thomas Jordan unexpectedly announced Friday that he plans to leave the Swiss National Bank (SNB) in September, prompting a flood of praise for his handling of the Swiss economy through the eurozone crisis, the COVID-19 pandemic and inflation.
But a trio of economists, who have been pushing for greater SNB transparency since 2021, said Jordan’s glowing record served as a distraction from serious flaws in his governance, especially when it comes to transparency and concentration of power, which he failed to do anything about.
“It is not completely clear if monetary policy is made by the president or the group of three directors,” said Yvan Lengwiler, economics professor at the University of Basel, and one-third of the SNB Observatory project which aims to promote constructive debate about central bank policy in Switzerland.
While acknowledging Jordan’s effective management of the economy, Lengwiler — joined in the Observatory project by French economist Charles Wyplosz and former Central Bank of Ireland Deputy Governor Stefan Gerlach — said in a press conference on Monday accompanying a joint report that “central banking is really more than making the right monetary policy decisions. It’s a public institution … and it should not be oblivious to other interests of the state.”
Opaque decisionmaking
The writers’ biggest gripe was that the public knows “almost nothing about how the SNB makes its decisions,” which unlike those of the Bank of England or the ECB are not broadcast in the form of minutes or accounts detailing which policymaker has said what and when.
“What is the relative weight of the Chairman of the Board compared to the other two members?” they went on. “What outside views enter the decision-making process? Is there a vibrant debate with dissent and discussion? Is the staff encouraged to speak their minds, or do they merely agree with the Chairman in the hope of boosting their careers?”
Jordan isn’t the only central banker to be criticized for autocratic tendencies in recent months. In a survey obtained earlier this year by POLITICO, staff at the European Central Bank described ECB President Christine Lagarde as “an autocratic leader who does not necessarily act according to the values she proclaims.”
But while Lagarde was criticized for imposing her every personal whim on her institution, Jordan’s failing in the eyes of critics was accepting the absolute rule bequeathed to him by his institution.
Part of the problem identified by Gerlach et al is that the Swiss National Bank’s Governing Board, which determines the direction of policy, consists of only three members, one of whom includes the chair. This contrasts with most Western central banks which draw on a much wider pool of policymakers.
According to the SNB Observatory economists, under the Swiss structure, however, Jordan can easily exert his will on the institution and even have a hand in succession planning.
In September 2022, the bank promoted Martin Schlegel to the number two Board spot, effectively putting his protégé in prime position to grab the top job once he leaves.
To counter the potential for autocratic abuse, the authors called on the SNB to increase the size of the board and include external members, as well as more women, pointing to the Bank of England’s monetary policy committee, which has nine members, four of which are external, as an example of a better structure.
Not distributive enough
The writers also took issue with a number of decisions made by the SNB under Jordan that appeared to prioritize the performance of the SNB at the expense of the Swiss taxpayer.
One issue they pointed to was the SNB’s use of a “dubious accounting method” to deduct multi-billion franc losses generated over the past two years from its pre-existing obligations to Swiss taxpayers, instead of from provisions for its foreign exchange operations which continued to increase by 10 percent.
“Accumulating capital may be reasonable from the SNB’s perspective, but it does not ‘serve the interests of the country as a whole’ as the law requires,” the authors wrote. “After the Covid years, more distributions would be highly valuable. Instead, the SNB accumulates capital for reasons that remain unclear and are not spelled out, giving the state the unenviable choice of shrinking expenditures or levying distortionary taxes.”
The SNB’s overly cautious approach, they added, was not justified by fears taxpayers could one day be exposed to costly recapitalizations because central banks, unlike normal banks, can operate with negative equity for extended periods.
Jordan’s impressive track record on the economy, such as his preservation of the franc during the eurozone crisis, may instead have distracted observers from how the SNB’s top-down structures had encouraged conservative attitudes that were now imperiling its role as a lender of last resort.
The SNB was widely criticized for being too slow to provide Credit Suisse with the emergency liquidity it needed before it failed due to an unwillingness to accept lower-quality collateral.
“Nobody seems to insist on accountability,” Lengwiler sighed. “Maybe because he did a good job-fighting inflation.”
The SNB did not respond to requests for comment by publication time.
