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Central bank equity: facts and analytics

Author

Listed:
  • Sujan Bandyopadhyay

    (Arizona State University)

  • Rishab Devnani

    (Independent Researcher)

  • Sudipta Ghosh

    (University of British Columbia)

  • Amartya Lahiri

    (University of British Columbia)

Abstract

How much capital should the central bank of a country hold? There is no consensus on this matter. We review the balance sheets of 45 central banks from around the world to describe actual practices. The principal findings are: (a) the average capital-asset ratio of central banks globally (net of revaluation capital which is purely an accounting entry) is 6.56 percent while the number in emerging economies is 6.96 percent; and (b) our Value-at-Risk estimates for the RBI excluding exchange rate risk indicate that the current level of the core capital of the RBI as mandated by the Jalan committee may be too low. We also discuss the policy moral hazards associated with mandating RBI equity payouts to the government.

Suggested Citation

  • Sujan Bandyopadhyay & Rishab Devnani & Sudipta Ghosh & Amartya Lahiri, 2021. "Central bank equity: facts and analytics," Indian Economic Review, Springer, vol. 56(1), pages 255-279, June.
    • Handle: RePEc:spr:inecre:v:56:y:2021:i:1:d:10.1007_s41775-021-00112-x
    DOI: 10.1007/s41775-021-00112-x
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    References listed on IDEAS

    as
    1. Nada Oulidi & Mr. Alain Ize, 2009. "Why Do Central Banks Go Weak?," IMF Working Papers 2009/013, International Monetary Fund.
    2. Mr. Peter Stella, 1997. "Do Central Banks Need Capital?," IMF Working Papers 1997/083, International Monetary Fund.
    3. Mr. Peter Stella & Mr. Ulrich H Klueh, 2008. "Central Bank Financial Strength and Policy Performance: An Econometric Evaluation," IMF Working Papers 2008/176, International Monetary Fund.
    4. Gustavo Adler & Pedro Castro & Camilo Tovar, 2016. "Does Central Bank Capital Matter for Monetary Policy?," Open Economies Review, Springer, vol. 27(1), pages 183-205, February.
    5. Mr. Alain Ize, 2006. "Spending Seigniorage: Do Central Banks Have a Governance Problem?," IMF Working Papers 2006/058, International Monetary Fund.
    6. Mr. Peter Stella, 2008. "Central Bank Financial Strength, Policy Constraints and Inflation," IMF Working Papers 2008/049, International Monetary Fund.
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    Cited by:

    1. Long, Jamie & Fisher, Paul, 2024. "Central bank profit distribution and recapitalisation," Bank of England working papers 1069, Bank of England.

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    More about this item

    Keywords

    Central bank equity; Value at risk; Policy moral hazard;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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