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Swiss Finished

9 January 2012 By Peter Thal Larsen

Philipp Hildebrand’s downfall is a warning to the world’s central bankers. The Swiss National Bank chief has been forced out after his wife engaged in ill-advised currency trades. In less turbulent times, he might have escaped with a slap on the wrist. But central bankers’ controversial policies have made them political targets.

At best, Kashya Hildebrand’s decision to swap 400,000 Swiss francs for U.S. dollars three weeks before the SNB intervened to push down the overvalued currency was stunningly naïve. Her husband’s failure to immediately reverse the transaction, when he found out the next day, was equally mistaken. The SNB also handled the situation badly. It did not commission an external investigation until December, and did not publish the report – and details of its ethical code – until early January.

Other central bankers may think they would have avoided these mistakes. They may also feel they have little in common with Hildebrand, who worked for a hedge fund before entering public life, and whose 2010 income of 861,000 Swiss francs ($900,000) made him one of the world’s best-paid central bank chiefs. Besides, central bankers are hardly prone to scandal: Rupert Pennant-Rea, who resigned as deputy governor of the Bank of England in 1995 following an extramarital affair, is one of the few whose personal behaviour cost him his job.

Nevertheless, the financial crisis has turned central bankers from faceless technocrats into divisive figures. Hildebrand angered Switzerland’s largest banks by pushing for them to hold more capital. He also attracted political criticism for his efforts, initially unsuccessful, to stem the Swiss franc’s rise – though subsequent pegging of the currency to the euro was seen as far more of a success.

Other central bankers are no strangers to political controversy. Ben Bernanke’s pursuit of quantitative easing at the U.S. Federal Reserve has made him a target for some Republican presidential nominees. Mario Draghi is bound to make political enemies whether or not the European Central Bank president intervenes to ease the euro zone’s sovereign debt crisis. In such positions, the slightest slip could prove fatal. In order to retain their independence, central bankers will have to make sure they are whiter than white.


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