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Governing the Governors: A Clinical Study of Central Banks

  • Frisell, Lars


    (Financial Stability Department, Central Bank of Sweden)

  • Roszbach, Kasper


    (Research Department, Central Bank of Sweden)

  • spagnolo, giancarlo


    (University of Rome)

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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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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Sveriges Riksbank, SE-103 37 Stockholm, Sweden

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