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Governing the Governors: A Clinical Study of Central Banks

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  • Frisell, Lars

    ()
    (Financial Stability Department, Central Bank of Sweden)

  • Roszbach, Kasper

    ()
    (Research Department, Central Bank of Sweden)

  • spagnolo, giancarlo

    ()
    (University of Rome)

Abstract

We study the specific corporate governance problems of central banks in their complex role of inflation guardians, bankers’ banks, financial industry regulators/supervisors and, in some cases, competition authorities and deposit insurance agencies. We review the current institutional arrangements of a number of central banks, e.g. formal objectives, ownership, board and governor appointment rules, term limits and compensation, using both existing surveys and newly collected information. Research on central bank governance appears to have focused almost only on their monetary policy task. As shown by the sub-prime loan market turmoil, central banks play a crucial role in financial markets not only in setting monetary policy, but also in ensuring their stability. In this paper, we contrast the current governance practices at central banks with the structures suggested in the corporate governance literature. Our analysis highlights a number of specific issues that appear to have been unsatisfactorily addressed by existing research, such as the incentive structure for governors and board members, the balance between central banks’ multiple objectives and the need for term limits.

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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 221.

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Length: 52 pages
Date of creation: 01 Mar 2008
Date of revision:
Handle: RePEc:hhs:rbnkwp:0221

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
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Keywords: accountability; bank regulation; board structure; central banks; corporate governance; central bank independence; governor remuneration; term limits;

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Cited by:
  1. Iftekhar Hasan & Loretta J Mester, 2008. "Central Bank Institutional Structure and Effective Central Banking: Cross-Country Empirical Evidence," Comparative Economic Studies, Palgrave Macmillan, vol. 50(4), pages 620-645, December.
  2. Donato Masciandaro & María J. Nieto & Henriëtte Prast, 2007. "Financial governance of banking supervision," Banco de Espa�a Working Papers, Banco de Espa�a 0725, Banco de Espa�a.
  3. Peter Stella & Ulrich H. Klueh, 2008. "Central Bank Financial Strength and Policy Performance," IMF Working Papers, International Monetary Fund 08/176, International Monetary Fund.
  4. Kenneth Sullivan & Marie-Thérèse Camilleri Gilson & Tonny Lybek, 2007. "Audit Committees in Central Banks," IMF Working Papers, International Monetary Fund 07/73, International Monetary Fund.
  5. Clare Leaver, 2007. "Bureaucratic Minimal Squawk Behavior: Theory and Evidence from Regulatory Agencies," Economics Series Working Papers, University of Oxford, Department of Economics 344, University of Oxford, Department of Economics.
  6. Marc Quintyn, 2009. "Independent agencies: more than a cheap copy of independent central banks?," Constitutional Political Economy, Springer, Springer, vol. 20(3), pages 267-295, September.

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