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Profit distribution and loss coverage rules for central banks

Author

Listed:
  • Studener, Werner
  • Merriman, Niall
  • Karakitsos, Polychronis
  • Bunea, Daniela

Abstract

The issue of central bank profit distribution is both complex and often politically controversial. Based on the replies of 57 central banks worldwide to an ECB questionnaire, this paper analyses how profit distribution rules can affect the amounts distributed and the financial strength of central banks. The paper also investigates the link between profit distribution, accounting rules and financial strength. Research shows that central banks apply divergent rules as regards profit distribution and loss coverage. While they are not a measure of central bank performance, in the long run profits strengthen the credibility of central banks and contribute to their financial independence, whereas profit distribution rules that do not allow central banks to set up adequate reserves might have the opposite effect. The interaction of profit distribution rules and accounting rules also plays an important role in central banks achieving financial strength. Accounting frameworks can materially influence central banks JEL Classification: E37, E58, M48

Suggested Citation

  • Studener, Werner & Merriman, Niall & Karakitsos, Polychronis & Bunea, Daniela, 2016. "Profit distribution and loss coverage rules for central banks," Occasional Paper Series 169, European Central Bank.
  • Handle: RePEc:ecb:ecbops:2016169
    Note: 494421
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpops/ecbop169.en.pdf
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    References listed on IDEAS

    as
    1. Jannie Rossouw, 2014. "Private Shareholding and Public Interest: An Analysis of an Eclectic Group of Central Banks," Working Papers 457, Economic Research Southern Africa.
    2. World Bank, 2005. "The World Bank Annual Report 2005," World Bank Publications, The World Bank, number 7537.
    3. repec:idb:brikps:17878 is not listed on IDEAS
    4. AfDB AfDB, . "AfDB Group Annual Report 2004," Annual Report, African Development Bank, number 60 edited by Koua Louis Kouakou.
    5. repec:idb:brikps:21018 is not listed on IDEAS
    6. Kenneth Sullivan, 2005. "Transparency in Central Bank Financial Statement Disclosures," IMF Working Papers 05/80, International Monetary Fund.
    7. repec:idb:brikps:21338 is not listed on IDEAS
    8. Bank for International Settlements, 2013. "Central bank finances," BIS Papers, Bank for International Settlements, number 71, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Donato Masciandaro, 2016. "More than the Human Appendix: Fed Capital and Central Bank Financial Independence," BAFFI CAREFIN Working Papers 1635, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    2. Bartels, Bernhard & Eichengreen, Barry & Weder, Beatrice, 2016. "No Smoking Gun: Private Shareholders, Governance Rules and Central Bank Financial Behavior," CEPR Discussion Papers 11625, C.E.P.R. Discussion Papers.
    3. repec:eee:jpolmo:v:39:y:2017:i:2:p:272-289 is not listed on IDEAS

    More about this item

    Keywords

    accounting framework; financial independence; financial strength; loss coverage; profit distribution;

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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