Currency deals put Swiss central bank on the spot

January 6, 2012

By Peter Thal Larsen
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Philipp Hildebrand has a Julius Caesar-style problem. The Roman emperor wanted his spouse to be above suspicion. Following revelations about his wife’s currency trading, the chairman of the Swiss National Bank must wish he could say the same.

Last August Kashya Hildebrand, a former currency trader who now runs a Zurich art gallery, swapped 400,000 Swiss francs into U.S. dollars. Three weeks later, her husband unveiled an intervention to push down the overvalued currency. A month after that, the Hildebrands exchanged U.S. dollars for 475,000 Swiss francs to finance a property deal. This wheeling and dealing left the couple around 65,000 Swiss francs better off.

According to the SNB, Hildebrand did not know about his wife’s trade until the day after it happened – and notified the central bank as soon as he found out. An investigation by PricewaterhouseCoopers has concluded that Hildebrand did not breach the central bank’s insider-trading rules.

Nevertheless, the affair leaves a bad taste. PwC was not called in until mid-December, when Hildebrand became aware of rumours about his trading. And the SNB only published PwC’s report after Sarasin, the Swiss private bank – in another blow to the country’s reputation for bank discretion – revealed that one of its employees had passed information about Hildebrand’s personal finances to a lawyer connected to the right-wing Swiss People’s Party.

Besides, the SNB’s rules look a bit lax. It’s hard to imagine the wives of Ben Bernanke, Mervyn King or Mario Draghi casually engaging in forex trading, while their husbands remained in their jobs.

The affair should not obscure Hildebrand’s achievements. He has been a perceptive and courageous central banker, leading the charge to impose tougher rules on the country’s two big banks, and masterminding the currency peg that reversed the Swiss franc’s rise.

Even so, the SNB, which has been under increasing scrutiny since the financial crisis, has a reputation to defend. The currency trading has undermined Hildebrand, playing into the hands of his political and commercial critics. Julius Caesar is said to have responded to baseless allegations of adultery against his wife by divorcing her. Hildebrand will be hoping he doesn’t have to go that far.

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