Determinants of central banks’ financial strength: evidence from Central and Eastern European countries

• Authors: Pajdo Barbara
• Languages of publication: EN

Abstracts

EN

The central banks’ financial strength supports financial stability. Now in a low interest rate world it should receive much more attention as many central banks had experienced financial difficulties mainly due to operating and valuation losses. The purpose of this paper is to investigate the determinants of central banks’ financial strength and find the most appropriate measure of it. The empirical analysis is based on data from a ten-year panel for central banks from Central and Eastern European Countries that are members of the European Union (EU), but have not adopted the euro.

Keywords

EN

central banking; financial strength; accounting framework; profit distribution

• Publisher: Uniwersytet Ekonomiczny w Poznaniu
• Journal: Economics and Business Review
• Year: 2017
• Volume: 3(17)
• Issue: 4
• Pages: 3-27

Dates

published

2017-12-20

Contributors

author

Pajdo Barbara

• Narodowy Bank Polski, Accounting & Finance Department, Świętokrzyska 11/21, 00‑919 Warszawa, Warsaw School of Economics, Collegium of World Economy, Al. Niepodległości 162, 02-554 Warszawa, Poland

References

• Act CXXXIX of 2013 on the Magyar Nemzeti Bank effective from 1 January 2015.
• Act No. 6/1993 Coll., on the Czech National Bank, as amended.
• Act on the Croatia National Bank. Official Gazette 75/2008 and 54/2013, consolidated version.
• Act on the National Bank of Poland (Narodowy Bank Polski) of 29 August 1997. Journal of Laws of 2013 item 908, as amended, consolidated version.
• Adler, G., Castro, P. and Tovar, C.E. (2016). Does Central Bank Capital Matter for Monetary Policy. Open Economies Review, Springer, vol. 27(1), pages 183-205, February.
• Archer, D. and Moser-Boehm, P. (2013). Central bank finances. BIS Papers, No 71, Monetary and Economic Department, Bank for International Settlements .
• Bartels, B., Eichengreen, B. and Weder di Mauro, B. (2016). No smoking gun: Private shareholders, governance rules, and central bank financial behaviour. CEPR Discussion Paper, No. DP11625.
• Bholat, D. and Darbyshire, R. (2016). Accounting in central banks. Bank of England Staff Working Paper, No. 604, May.
• Bindseil, U., Manzanares, A. and Weller, B. (2004). The role of central bank capital revisited. ECB Working Paper, No. 392, September 2004, Frankfurt am Main, European Central Bank.
• Bini Smaghi, L. (2011). Risk management in central banking. Speech by Mr Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, at the International Risk Management Conference 2011, Free University of Amsterdam, Amsterdam, 15 June 2011.
• Buiter, W.H. (2008). Can Central Banks Go Broke ?. Centre for Economic Policy Research, CEPR Policy Insight, No. 24, London, May.
• Bunea D., Karakitsos, P., Merriman, N. and Studener, W. (2016). Profit distribution and loss coverage rules for central banks. ECB Occasional Paper Series, No 169, April.
• Cargill, T.F. (2006). Central bank capital, financial strength, and the Bank of Japan. In: Economic Letter. Federal Reserve Bank of San Francisco, 11 May.
• Dalton, J. and Dziobek, C. (2005). Central Bank Losses and Experience in Selected Countries, IMF Working Paper, No. WP/05/72, Washington DC: International Monetary Fund.
• Del Negro, M. and Sims, Ch. A. (2015). When Does a Central Bank’s Balance Sheet Require Fiscal Support? Journal of Monetary Economics, vol. 73(C), pages 1-19.
• Guideline (EU) 2016/2249 of the European Central Bank of 3 November, 2016 on the legal framework for accounting and financial reporting in the European System of Central Banks (ECB/2016/34) as published in the Official Journal of the EU (L 347 on 20.12.2016).
• Hall, R.E. and Reis, R. (2015). Maintaining Central-Bank Solvency under New-Style Central Banking. NBER Working Paper 21173.
• Holub, T. (2001). Seigniorage, Central Bank’s Profits, Capital and Credibility. Dissertation, Faculty of Social Sciences, Charles University, Prague. Retrieved from http://ies.fsv.cuni.cz/work/index/show/id/59/lang/en
• Ingram, I. (2014). Funding and accountability: an overview of financial management in Sullivan, K. and Horakova, M. (eds): Financial independence and accountability for central banks. Central Banking Publications.
• International Accounting Standards Board (2014) International Financial Reporting Standards IFRS 2014 as issued at 1 January 2014. London: IFRS Foundation.
• Ize, A. (2005). Capitalizing Central Banks: A Net Worth Approach. IMF Working Paper, No. WP/05/15, Washington, DC: International Monetary Fund.
• Ize, A. (2007). Spending seigniorage: do central banks have a governance problem? IMF Staff Paper, Vol 54, No. 3, pp. 563-589.
• Kluh, U., Stella, P. (2008) Central bank financial strength and policy performance: an econometric evaluation. In: IMF Working Paper. International Monetary Fund, Washington, DC, No. 176.
• Law No. 312/28.06.2004 on the Statute of the National Bank of Romania.
• Law on the Bulgarian National Bank. Adopted by the 38th National Assembly on 5 June 1997; published in the Darjaven Vestnik, issue 46 of June 1997, as amended.
• Martinez-Resano, J.R. (2004). Central Bank Financial Independence. Banco de España Ocasional Paper, No 0401, Madrid, Banco de Espana, Servico de Estudios.
• Perera, A., Ralston, D., Wickramanayake, J. (2013). Central bank financial strength and inflation: Is there a robust link? Journal of Financial Stability, Vol. 9, pp.399-414.
• Pinter, J. (2015). Central bank balance-sheet concerns: where does Central Bank Financial Strength actually matter for Inflation? Universiteit van Amsterdam, Université Paris 1 Panthéon -Sorbonne.
• Pringle, R. (2003). Why Central Banks Need Capital, Central Banking, Vol. XIV, No. 1, pp. 76-80.
• Reis, R. (2015). Different Types of Central Bank Insolvency and the Central Role of Seignorage. Columbia University, Journal of Monetary Economics, 73, pp. 20-25.
• Resolution of Monetary Policy Council of December 16, 2003 on accounting principles, the structure of assets and liabilities in the balance sheet and the profit and loss account of the National Bank of Poland as published in Dz. Urz. NBP of 2003, No 22, item 38 with later amendments.
• Resolution of Monetary Policy Council of December 14, 2010 on the principles for creating and releasing the provision against the foreign exchange rate risk of the zloty at the National Bank of Poland as published in Dz. Urz. NBP of 2010, No 17, item 19.
• Schwarz, C., Karakitsos, P., Merriman, N. and Studener, W., (2014). Why accounting matters. A central bank perspective. ECB Occasional Paper Series, pp. 1-35, No. 153, May.
• Sermon, Ch. (2005). Accountancy’s golden puzzle. Central Banking, August 2005, 16 (1), pp. 74-82.
• Stella, P. (2002). Central Bank Financial Strength, Transparency, and Policy Credibility. IMF Working Paper, No. 02/137, Washington, DC: International Monetary Fund.
• Stella, P. (2003). Why Central Banks Need Financial Strength. Central Banking, XIV, No. 2, p. 27.
• Stella, P. (2005). Central Bank Financial Strength, transparency, and policy credibility. IMF Staff Paper, vol. 52. International Monetary Fund, Washington, DC, pp. 335-365.
• Swiston, A., Frantischek F., Gajdeczka P. and Herman A. (2014). Central Bank Financial Strength in Central America and the Dominican Republic. IMF Working Paper, No. 14/87, Washington, DC: International Monetary Fund.
• Ueda, K. (2004). The role of Capital for Central Banks, based on the speech given by Kazuo Ueda, Member of the Policy Board, at the Fall Meeting of the Japan Society of Monetary Economics on 25 October 2003, Bank of Japan, Tokyo.
• Vergote, O., Studener, W., Efthymiadis, I. and Merriman, N. (2010). Main drivers of the ECB financial accounts and ECB financial strength over the first 11 years. ECB Occasional Paper Series, No 111, May.

Identifiers

DOI

10.18559/ebr.2017.4.1