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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
    as

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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
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    8. Mr. Kenneth Sullivan, 2005. "Transparency in Central Bank Financial Statement Disclosures," IMF Working Papers 2005/080, International Monetary Fund.
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    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. Bofinger, Peter & Feld, Lars P. & Schmidt, Christoph M. & Schnabel, Isabel & Wieland, Volker, 2018. "Vor wichtigen wirtschaftspolitischen Weichenstellungen. Jahresgutachten 2018/19 [Setting the Right Course for Economic Policy. Annual Report 2018/19]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201819, September.
    3. Weder di Mauro, Beatrice & Bartels, Bernhard & Eichengreen, Barry, 2016. "No Smoking Gun: Private Shareholders, Governance Rules and Central Bank Financial Behavior," CEPR Discussion Papers 11625, C.E.P.R. Discussion Papers.
    4. Bindseil, Ulrich & Marrazzo, Marco & Sauer, Stephan, 2024. "The impact of central bank digital currency on central bank profitability, risk-taking and capital," Occasional Paper Series 360, European Central Bank.
    5. Niwa, Hidekazu, 2024. "A fiscal theory of central bank’s solvency: Perils of the quantitative and qualitative monetary easing," Japan and the World Economy, Elsevier, vol. 70(C).
    6. Whittaker, John, 2020. "Financial support for Italy will be costless," MPRA Paper 101025, University Library of Munich, Germany.
    7. van Riet, Ad, 2017. "Monetary Policy Stretched to the Limit: How Could Governments Support the European Central Bank?," MPRA Paper 83451, University Library of Munich, Germany.
    8. Jörg Bibow, 2018. "Unconventional monetary policies and central bank profits," IMK Studies 62-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    9. Hiermeyer, Martin, 2020. "Central Bank Profit Distribution As A Monetary Policy Tool," MPRA Paper 99864, University Library of Munich, Germany.
    10. Sascha Buetzer, 2022. "Advancing the Monetary Policy Toolkit through Outright Transfers," IMF Working Papers 2022/087, International Monetary Fund.
    11. Rabindra Kumar Jena, 2022. "Examining the Factors Affecting the Adoption of Blockchain Technology in the Banking Sector: An Extended UTAUT Model," IJFS, MDPI, vol. 10(4), pages 1-20, September.
    12. Igor Ljubaj, 2020. "International Reserves, Exchange Rate Differences and the CNB’s Financial Result," Surveys 38, The Croatian National Bank, Croatia.
    13. Debrun, Xavier & Masuch, Klaus & Ferrero, Guiseppe & Vansteenkiste, Isabel & Ferdinandusse, Marien & von Thadden, Leopold & Hauptmeier, Sebastian & Alloza, Mario & Derouen, Chloé & Bańkowski, Krzyszto, 2021. "Monetary-fiscal policy interactions in the euro area," Occasional Paper Series 273, European Central Bank.
    14. Jonas Groß & Manuel Klein & Philipp Sandner, 2020. "Digitale Zentralbankwährungen: Chancen, Risiken und Blockchain-Technologie [Central Bank Digital Currencies: Benefits, Risks and the Role of Blockchain Technology]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 100(7), pages 545-549, July.
    15. Mosler, Warren & Silipo, Damiano B., 2017. "Maximizing price stability in a monetary economy," Journal of Policy Modeling, Elsevier, vol. 39(2), pages 272-289.

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    More about this item

    Keywords

    accounting framework; financial independence; financial strength; loss coverage; profit distribution;
    All these keywords.

    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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