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Financial Stability and Central Bank Governance

Author

Listed:
  • Michael Koetter

    (Frankfurt School of Finance and Management, Halle Institute for Economic Research)

  • Kasper Roszbach

    (University of Groningen, Sveriges Riksbank)

  • Giancarlo Spagnolo

    (University of Rome Tor Vergata, SITE, Stockholm School of Economics, CEPR)

Abstract
The financial crisis has ignited a debate about the appropriate objectives and the governance structure of central banks. We use novel survey data to investigate the relation between these traits and banking system stability, focusing in particular on their role in micro-prudential supervision. We find that the separation of powers between single and multiple bank supervisors cannot explain credit risk prior to or during the financial crisis. Similarly, a large number of central bank governance traits do not correlate with system fragility. Only the objective of currency stability exhibits a significant relation with non-performing loan levels in the run-up to the crisis. This effect is amplified for those countries with most frequent exposure to IMF missions in the past. Our results suggest that the current policy discussion on whether to centralize prudential supervision under the central bank and the ensuing institutional changes some countries are enacting may not produce the improvements authorities are aiming at. Whether other potential improvements in prudential supervision due to, for example, external disciplinary devices, such as IMF conditional lending schemes, are better suited to increase financial stability requires further research.

Suggested Citation

  • Michael Koetter & Kasper Roszbach & Giancarlo Spagnolo, 2014. "Financial Stability and Central Bank Governance," International Journal of Central Banking, International Journal of Central Banking, vol. 10(4), pages 31-68, December.
    • Handle: RePEc:ijc:ijcjou:y:2014:q:4:a:2
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    References listed on IDEAS

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    Cited by:

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    2. Masciandaro, Donato & Volpicella, Alessio, 2016. "Macro prudential governance and central banks: Facts and drivers," Journal of International Money and Finance, Elsevier, vol. 61(C), pages 101-119.
    3. Levieuge, G. & Lucotte, Y. & Pradines-Jobet, F., 2019. "Central banks’ preferences and banking sector vulnerability," Journal of Financial Stability, Elsevier, vol. 40(C), pages 110-131.
    4. Rochelle Edge & Nellie Liang, 2017. "New Financial Stability Governance and Central Banks," RBA Annual Conference Volume (Discontinued), in: Jonathan Hambur & John Simon (ed.),Monetary Policy and Financial Stability in a World of Low Interest Rates, Reserve Bank of Australia.
    5. Emna Trabelsi, 2019. "Do independence and transparency matter for bank development? A new lookup on emerging and developing countries," Post-Print hal-02162780, HAL.
    6. Fraccaroli, Nicolò & Sowerbutts, Rhiannon & Whitworth, Andrew, 2020. "Does regulatory and supervisory independence affect financial stability?," Bank of England working papers 893, Bank of England.
    7. Fraccaroli, Nicolò, 2019. "Supervisory governance, capture and non‑performing loans," Bank of England working papers 820, Bank of England.
    8. Karsten Müller, 2023. "Electoral Cycles in Macroprudential Regulation," American Economic Journal: Economic Policy, American Economic Association, vol. 15(4), pages 295-322, November.
    9. Donato Masciandaro, 2018. "Central Banks And Macroprudential Policies: Economics And Politics," BAFFI CAREFIN Working Papers 1878, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

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    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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