Central Bank Governance and Financial Stability
The learning initiative follows the discussion of central bank autonomy as a key element of good economic governance in the context of the CEF-ECB 2016 regional seminar for the Western Balkans. Organized by the CEF with the participation of the BIS and the IMF, it will provide an opportunity to delve deeper into accountability and governance issues stemming from a broadening of central bank mandates across the SEE constituency to include, formally or otherwise, policy objectives and operational responsibilities for financial stability.
Indeed, in the wake of the financial crisis, the earlier focus of many central banks on maintaining price stability has been augmented by various financial stability mandates. This has substantially raised the complexity of central banking. It has also replaced a world where central banks were not meant to be the focus of attention - by maintaining price stability so well, that their actions would barely be noticed - with one in which they are squarely in the limelight, drawing public and political attention. Central banks are often seen as the only institution that can restore financial stability and sustained economic growth, and their reputation is on the line, independently of whether they have full authority over the required toolkit, decision-making and financial resources. At the same time, mandates, objectives, decision-making powers and financial responsibilities for financial stability actions remain weakly defined in many jurisdictions.
In view of a difficult road of experimentation ahead, and much learning that remains to be done to improve on these matters, the topic is ripe for a sharing of knowledge and experience between participating countries with insight from partner institutions on global practices. While the first day will bring together senior management and external board members invited to share their experience in dealing with the challenges stemming from financial stability objectives, the second and third day will broaden the discussion to cover a variety of operational aspects relating to good governance, effective oversight practices and sound administrative management across central banks. The governance structures for fulfilling financial stability mandates and striking an effective balance between autonomy and accountability will be the starting point for the discussion.
Program Outline(Press +/- to expand/shrink text)
The learning initiative will unfold over 2.5 days. In line with other events of the CEF central banking thematic area, the program is designed to be highly interactive, comprising expert presentations, both from participants and partners, group work and plenary discussions.
On the first day, the challenges stemming from the broadening of central bank mandates will be discussed from a big-picture perspective, with a focus on what an individual central bank can do to help stakeholders (parliament, government, markets and the financial sector, and the public at large) understand the new environment and to appropriately adjust rules and understandings on the central bank's functions and responsibilities. To keep the discussion grounded in practice and respond to constituency needs on operational matters, a small number of specific challenges will be covered in some detail – these will include how financial stability objectives can be specified, what kinds of decision-making frameworks for financial stability matters have evolved, and how central bank financial strength can be calibrated and maintained.
To achieve a blend of high-level and concrete perspective, introductory presentations will provide an overview of the experience of central banks across the globe. Brief lead presentations by selected participants will introduce the regional perspective and country specifics, and a considerable part of the meeting time will be allocated to discussion among participants, with the CEF facilitating a sharing of experience relating to challenges faced and lessons learned.
The second and third day will build on previous discussions to devote further attention to selected aspects of good governance, drawing a distinction between different types of policy frameworks, objectives and toolkits, as well as legal and practical safeguards for striking a balance between autonomy and accountability. This will help shed light on key elements of decision-making structures and the role of board members. The discussion is expected to delve into their contribution towards fulfilling the central bank mandate, their interactions with other governance bodies and committees, and draw lessons on reporting lines and communication. Since financial stability issues straddle across multiple institutions with consequences for taxpayers, the delicate issues of vested interests and coordination between central banks and ministries of finance will also be of interest. This will include an illustration of areas which have sometimes proven to be sensitive or a source of disagreement and highlights from global practice with respect to conflict resolution mechanisms. The discussion will also cover the main aspects of central bank internal organization and administration, such as audit functions, to illustrate how to strengthen good governance, build trust and uphold credibility. This will be complemented by a discussion of transparency and policy effectiveness, highlighting key elements of financial reporting practices and central bank balance sheet issues, particularly in relation to financial stability objectives.
The initiative was primarily designed for members of central bank boards and senior management who are directly involved in accountability processes and effective policy-making. Representatives of Governor's offices, Board Secretariats, Chief Financial Officers, Heads of Legal Services, and those directly involved in relationships with external stakeholders are also invited to participate. Proceedings and group discussions will be subject to Chatham House rules to encourage frank discussion, while key highlights of lead presentations will be reported, unattributed, on social media to reach out to participants’ colleagues within their home institutions. Reading materials will be made available to participants ahead of time, as the latter will be expected to present their country perspectives on the issues raised for discussion.
The program for this learning initiative is supported by the Bank of Slovenia and is delivered in cooperation with the Bank of International Settlements and the Monetary and Capital Markets, Finance, and Legal Departments of the International Monetary Fund. National central bank representatives will also participate in the learning to bring in a strong regional perspective.