The Swiss National Bank lost a staggering US$142.369 billion in the first nine months of 2022, equivalent to around 17 percent of Switzerland’s entire GDP.
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The losses of the Central Bank of Switzerland are detailed in official interim results, made public this week.
The majority of the extraordinary loss comprises of what’s categorised as ‘foreign currency positions’ ($140.99 billion).
The foreign currency position losses comprise of:
- Fixed income securities: -$70.866 billion
- Stock market positions: -$54.18 billion
- Currency exchange losses: -$24.447 billion
The Central Bank also recorded a $1.063 billion loss on the value of gold holdings.
Swiss bank balance sheet exceeds nations GDP
The Swiss Central Bank is one of the few central banks with a balance sheet larger than its nation’s GDP.
This is a result of the strong demand for Swiss francs in the post-2008 financial crisis era.
As investors sought out Switzerland as a tax-effective safe-haven to store their wealth, the Central Bank used the proceeds of Swiss franc sales buy foreign bonds, stocks and currency in order to prevent the franc from sky-rocketing.
For a period of time in 2018, Switzerland famously held more Facebook shares than Mark Zuckerberg.
But now that unconventional monetary policy could be coming back to bite.
At the beginning of the year, Switzerland’s top stock positions were dominated by U.S. tech stocks, one of the poorest performing stock market sectors of 2022.
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Throughout 2022, the bank has been selling U.S. tech stocks as it repositions its portfolios.
In recent weeks, Switzerland has also had to draw on swap lines established with the U.S. Federal Reserve in order to access USD.
On October 19, the Swiss National Bank drew a $11.09 billion seven-day swap. The swap was repaid on maturity after seven days, however it was the largest USD swap ever undertaken by Switzerland, leaving many observers to question the stability of the Swiss economy.
The Swiss bank’s swap dwarfed other swaps undertaken in the same week by the European Central Bank and the Bank of Japan.
Speculation is rife that the swaps were part of a covert bailout of troubled private Swiss financial institutions including Credit Suisse and UBS. However, this has not been confirmed by any offical source.
What Switzerland’s problems mean for the rest of the world
Despite the huge Swiss National Bank losses seen so far in 2022, the bank’s balance sheet has been through a period of extraordinary expansion, thanks primarily to the U.S. stocks bull market that spanned over a decade, up until 2022. So, the bank can afford a hit – even of this magnitude.
But if the losses continue, the shear size (approximately $1 trillion) of the Swiss bank’s balance sheet produces major counterparty risk and should aggressive asset sales take place, Switzerland itself represents a potential downside risk to major global stock market indices.
Also, volatility in the Swiss franc is likely to lead to increased flight to the USD, further strengthening the greenback.