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Governing the Governors: A Clinical Study of Central Banks

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  • Frisell, Lars
  • Roszbach, Kasper F.
  • Spagnolo, Giancarlo

Abstract

Recent research on central bank governance has focused mainly on their monetary policy task. As the sub-prime loan market turmoil reminded us - central banks play a crucial role in financial markets not only in setting monetary policy, but also in ensuring their soundness and stability. In this paper we study the specific corporate governance structures of a number of central banks in light of their complex role of inflation guardians, bankers’ banks, financial industry regulators/supervisors and, in some cases, competition authorities and deposit insurance agencies. We review their current institutional arrangements, e.g. formal objectives, ownership, board and governor appointment rules, term limits and compensation, using both existing surveys and newly collected information; and we contrast them with the structures suggested in the corporate and public governance literatures, where present. Our analysis highlights a striking variety in central bank governance structures and a number of specific issues that appear unsatisfactorily addressed by existing research, including the incentive structure for governor and board members, the balance between central banks’ multiple objectives, and the need for term limits or post-employment restrictions.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6888.

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Date of creation: Jun 2008
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Handle: RePEc:cpr:ceprdp:6888

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Keywords: accountability; bank regulation; board structure; central bank independence; central banks; cooling-off periods; governance; governor remuneration; regulatory capture; term limits;

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Cited by:
  1. Kenneth Sullivan & Marie-Thérèse Camilleri Gilson & Tonny Lybek, 2007. "Audit Committees in Central Banks," IMF Working Papers 07/73, International Monetary Fund.
  2. Hasan , Iftekhar & Mester, Loretta, 2008. "Central bank institutional structure and effective central banking: cross-country empirical evidence," Research Discussion Papers 29/2008, Bank of Finland.
  3. Masciandaro, D. & Nieto, M. & Prast, H.M., 2007. "Financial Governance of Banking Supervision," Open Access publications from Tilburg University urn:nbn:nl:ui:12-381469, Tilburg University.
  4. Clare Leaver, 2007. "Bureaucratic Minimal Squawk Behavior: Theory and Evidence from Regulatory Agencies," Economics Series Working Papers 344, University of Oxford, Department of Economics.
  5. Marc Quintyn, 2009. "Independent agencies: more than a cheap copy of independent central banks?," Constitutional Political Economy, Springer, vol. 20(3), pages 267-295, September.
  6. Peter Stella & Ulrich H. Klueh, 2008. "Central Bank Financial Strength and Policy Performance," IMF Working Papers 08/176, International Monetary Fund.

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