The Next Head of the SNB – Thomas J. Jordan

Mr. Jordan is my guess as the next head of the Swiss National Bank. He’s been at the SNB since 1997. He moved up from the economics department and is now the Vice Chairman.

Mr. J is well qualified. This link to his CV shows that he is an academic at heart. He has never worked in the private sector. “Euro Technocrat” comes to mind.

A quick review of some of J’s writings convinces me that he has been a strong advocate of an active and interventionist role in financial markets by the SNB.

He was actively involved with the bailout of UBS in 2008. The SNB created a SPIV where UBS dumped its toxic assets. This came to a $60B transaction. 90% of the funding came from the SNB, the balance came from UBS, but the SNB back doored the money to UBS to get the deal done.

In the 4th quarter of 2008 the financial world was coming apart. There were big funding problems with Swiss Banks as global liquidity dried up. Jordan was actively involved with formulating the SNB response. He flooded the domestic market with liquidity. He wrote of the period in this article. His words:

The turmoil in the money market prompted the SNB to conduct money market operations to an extent that had never before been witnessed. There were days when up to five auctions were held. The volume of the operations varied considerably. On record days, we carried out operations worth over CHF 100 billion.

Note: CHF 100B is equal to 20% of Swiss GDP. This is equivalent to $3 trillion in the US markets

The extent of the money market operations also has a major impact on the size of the SNB’s balance sheet. Before the crisis, approximately CHF 20 billion of the balance sheet went towards monetary policy; today, we are looking at around CHF 80 billion.

This was the first step of many for what has become a massive increase in Swiss reserves (now CHF260B, a 7 fold increase). Clearly, Jordan was pushing the reserve increases as a solution in 2008. No doubt but that he has continued to be a strong advocate for continued reserve accumulation as a “simple” solution to the problems Switzerland faces.

I found this article at Bloomberg dated 8/11. On this day Jordan made a very important public statement. He confirmed, that after legal review, it was possible for the SNB to establish a currency peg. (There was a question if a peg violated the currency laws of the country) Two important points:

-Jordan had to have been the one at the SNB who was pushing for the peg. He took it on his own to resolve the legal questions. When he had done that, he went public. This was a warning/threat to the FX market that the SNB would soon act (they did, two weeks later).

-This happened on August 11. Four days before Kashya Hildebrand did her fateful FX trade. I maintain that Kashya had key insights into what would soon unfold with the devaluation of the Franc. She never discussed with her husband on 8/11 the important information provided by Jordan? While it no longer matters, I find this aspect of the affair very hard to believe. This story has more holes than the cheese of Switzerland.

Should Thomas Jordan be appointed as the next head of the SNB I would strongly suspect that one of his first acts will be a confirmation that “Existing Policy Measures of the SNB” (AKA – the Peg) will be maintained. The "peg" is Jordan’s baby. He will not back off. If pushed by the market, I believe he would step up to the plate and aggressively defend the peg.

That said, the Hildebrand Affair has significantly weakened the SNB. I have said this before, I will say it again. There are powerful political forces in Switzerland who are philosophically apposed to the unending reserve accumulation by the SNB. These opposition forces have had a major victory. They have forced Hildebrand out; something they have been attempting to do for years.

The opposition to the strategies and tactics of the SNB will not end. Should we see another significant increase in Swiss reserves this issue is going to come right back on the table. I think that additional reserve accumulation is now inevitable. So the stage is getting set for a showdown.