Philipp Hildebrand, a key European banking figure who polarized global markets but was cheered as a hero in his home country, stunned observers on Monday by abruptly stepping down as chairman of Swiss National Bank.
Mr. Hildebrand, who rose in prominence following a bold move to cap his country’s soaring currency, resigned amid a public scandal over currency trades made by his wife.
The announcement came as he continued to deny any knowledge of his wife’s decision to purchase $500,000 in U.S. dollars three weeks before the central bank, under his guidance, slapped a cap on the soaring franc. Kashya Hildebrand, a former currency trader, later converted the funds back into francs, garnering a profit of tens of thousands of dollars.
Mr. Hildebrand also resigned as vice-chairman of the Financial Stability Board, a Switzerland-based international body tasked with co-ordinating global efforts to set regulations aimed at preventing future financial meltdowns.
Bank of Canada Governor Mark Carney, who took over as head of the board in November, described him as “instrumental” in efforts to respond to the global financial crisis. The two bankers are long-time friends who were at one point both top contenders to lead the organization. “I very much regret the circumstances of his departure and the loss of his future contributions to the work of the Financial Stability Board,” Mr. Carney said in a statement.
Though he denied any wrongdoing, Mr. Hildebrand nevertheless said he could not prove his innocence.
“I have come to the conclusion that it is not possible to provide conclusive and final evidence that my wife did indeed initiate the foreign-exchange transaction without my knowledge,” he said. “The fact is: My word is my bond. I had no knowledge of my wife’s transaction on that day.”
Mr. Hildebrand’s resignation marked a swift reversal of fortune for the former swimming champion, whose bold actions as head of the SNB had earned him a level of recognition rare for a central banker.
As head of the SNB, he fought for substantially higher capital buffers for banks, forcing UBS AG and Credit Suisse Group AG to raise their capital reserves. Later he championed tougher rules for systemically important banks deemed “too big to fail” and aggressively lowered borrowing costs. And when the global economic crisis sent worried investors fleeing to the Swiss franc, a traditional safe haven, Mr. Hildebrand made its boldest move yet. In September, with the franc up 20 per cent against the euro, burdening Swiss exporters, the SNB announced that it would step in to bring the soaring currency back to earth. It declared a minimum exchange rate of 1.20 francs against the euro and said it was prepared to buy foreign currency in unlimited quantities in order to enforce it.
The controversial move shocked markets but inside Switzerland, it made Mr. Hildebrand a star, said Daniel Kuebler, a political scientist at Zurich University. “He was a hero,” Mr. Kuebler said. “It was the single most important measure for exporters and farmers and it was something the politicians couldn’t do.”
But Mr. Hildebrand’s policies also drew fierce criticism, particularly from Switzerland’s right-wing Swiss People’s Party. The party, which wants to keep Switzerland out of the European Union, brought forward the allegations that led to Mr. Hildebrand’s resignation after details of the Mr. Hildebrand’s private banking information were leaked by an employee of the Swiss Bank Sarasin. According to a statement from the bank, the employee disclosed the transactions to a lawyer with close links to the Swiss People’s Party who then arranged a meeting with Christoph Blocher, a well-known figure in the party.
The employee is now in a closed psychiatric unit of a hospital, according to Swiss media reports.
The scandal at the central bank comes as the United States cracks down on offshore tax evasion through Switzerland’s private banks. A broad criminal probe by the U.S. Justice department of Swiss banks and wealthy American clients has strained relations between the two countries and tarnished the country’s banking sector.
Swiss National Bank vice-president Thomas Jordan will take his place as interim chairman on the bank’s three-member board. In a statement, the SNB said it would continue to pursue the minimum exchange rate of 1.20 francs against the euro with the “utmost determination.”
“All this discussion about bank secrecy including the Hildebrand leak, goes to the heart of the success of the Swiss financial sector which is a big part of the financial success of the entire country,” said Michael Hermann, a Zurich-based political scientist. “If these banks continue to have trouble dealing with clients and protecting clients, it could be very damaging.”
Mr. Hildebrand has several Canadian connections. He attended the University of Toronto, graduating in 1988 with a bachelor of arts with distinction. A champion swimmer in Switzerland who almost qualified for the Los Angeles Olympics, he also swam for a year on the university’s varsity team.
Head coach Byron MacDonald vividly recalls his “natural leadership ability” and commanding presence, even as a young man.
“He was an incredibly dynamic guy,” said Mr. MacDonald, who went to Switzerland in the 1980s to recruit his then-girlfriend to the Toronto swim team and wound up luring Mr. Hildebrand to Canada as well. “He was just one of those very unique, well-liked guys.”