CENTRAL BANK GOVERNANCE AND FINANCIAL STABILITY

Transcription

1 CENTRAL BANK GOVERNANCE AND FINANCIAL STABILITY Gavin Bingham Secretary General Central Bank Governance Forum CEMLA Spring Meeting May 2010 Buenos Aires 1

2 Lessons of the crisis for central banks Central banks are the first to act in a crisis Pick up early warning signs Can expand balance sheet quickly Role in crisis prevention New macroprudential role Leaning against the wind Close cooperation with the government is essential What will this mean for autonomy? 2

3 Financial stability mandates Current financial stability mandates are often implicit Actions in a crisis Classical l LoLRLR Unusual and exigent support Role in peacetime Macroprudential policy Leaning against the wind Contribution to crisis resolution 3

4 Powers and safeguards More administrative powers back to the future? Liquidity and credit controls Role in regulation and supervision Greater need for safeguards Financial stability decisions are more political Vested interests of the industry Legal challenge Financial risk 4

5 Decision-making one committee or more? Single committee Used in Brazil, Japan, Sweden Facilitates coordination of policies More diverse membership needed Multiple committees Used in U.K., U.S., Malaysia and Thailand Brings needed expertise Permits separate accountability mechanisms Synthesis Overlapping membership or delegation Separate procedures or meetings (Japan, ECB) 5

6 Autonomy and accountability Close cooperation with other public bodies is essential Creates risk for autonomy Clarity about roles and responsibilities helps Accountability through transparency and oversight Transparency about decisions and procedures Testimonies and legislative oversight 6

7 Governance challenges Vaguer objectives Financial stability objectives cannot be quantified Different powers More administrative instruments Need for greater safeguards Autonomy and accountability Does more cooperation imply less autonomy? Role of transparency 7

8 Conclusions Pressure for governance changes will grow Need for autonomy Is greater... but more difficult to achieve Roles and responsibilities Will overlap... but need to be clearly specified 8

9 Questions for discussion What financial stability mandate should the central bank have? How should relations with other authorities be structured? How can the financial risks be best managed? 9

10 SUPPLEMENTARY MATERIAL 10

11 Reasons for involvement in macroprudential policy Skills macroeconomic focus knowledge of markets understanding of institutions Incentives Need to avoid large exposures in a crisis Need to understand how financial instability affects monetary policy transmission rm = rp + m(capreg, competition, risk) 11

12 What is macroprudential policy? No consensus yet - but will involve use of regulatory instruments to mitigate threats to systemic instability Macroprudential policy involves identification of vulnerabilities evaluation of the policy options design of regulations supervision and enforcement resolution of distressed institutions 12

13 What role does the central bank play in macroprudential policy? Different jurisdictions envisage different roles In the EU central banks would play a prominent role in diagnosis and prescription, but a more limited one in implementation In the U.S. the central bank would be responsible for the regulation and supervision of systemically significant institutions of all types In the U.K. and Japan the central bank would play a role in resolution 13

14 Independence Financial stability decisions are inherently more political Close collaboration with other authorities is needed Pressure may be brought to bear to use prudential tools for monetary policy purposes 14

15 How can the central bank be held to account for financial stability? Objectives for financial i stability cannot be specified with precision Responsibility for financial stability is shared Clarity about actions and decision-making is essential 15

16 Current vs potential new governance models Clear objectives Vaguer objectives Market-based instruments Sole decision-maker Transparent and accountable Financial autonomy More administrative instruments Shared decision-making Stricter oversight 16

17 Central bank balance sheet size and asset duration 1 Eurosystem Federal Reserve Swiss National Bank Repo: < 1 month 1 month 3 months 6 months 1 year 3,000 2,000 Securities held outright 2 : 1 year 1 5 years 5 10 years 3,000 Foreign currency investment CHF swaps Repo: 2,000 > 10 years 1 month months 300 Total assets 1,000 1, In billions of units of national currency. For the Eurosystem and the Swiss National Bank, breakdown of outstanding repo operations refers to original maturity; for the Federal Reserve, breakdown of securities held outright refers to remaining maturity. 2 Includes mortgage-backed securities, US Treasuries and agency debt securities held outright. Source: Central banks. 17

18 Banking supervision by locus of responsibility Per cent of 125 countries 75% 50% 25% % Central bank Government department Separate supervisory agency Other Source: FSI (2006). 18

19 Weight of central bank objectives in central bank laws Monetary policy objectives Objectives related to financial i stability Employment, growth and welfare objectives Support policies of government Achieve surplus or profits Per cent of 40 central banks Index; monetary policy objectives = Source: BIS analysis of central bank laws. 19

20 Different functions, different responsibilities Responsibility for supervision and oversight Percent of 41 central banks Banks: License Supervise Intervene Investment banks: License Supervise Intervene Dealers: License Supervise Intervene Fund managers: License Supervise Intervene Insurance: License Supervise Intervene Conglomerates: License Supervise Intervene Credit registries: License Supervise Intervene Financial markets: License Supervise Intervene Payment systems: License Supervise Intervene 0% 25% 50% 75% 100% Full Shared Minor None 20

21 To whom do central banks formally account? 75% 64% 50% 30% 25% 21% 17% 9% 0% Parliament/ Legislature Minister of Finance Government or head of government Head of state Other 21

22 For more information Central Bank Governance Forum