Central Bank Governance. 30 November 2010 Oliver Loch 1

Transcription

1 Central Bank Governance 1

2 Agenda 1 Corporate Governance of state owned enterprises 2 Key aspects in Central Bank Governance and framework at the Bundesbank 3 Independence and Governance

3 Agenda 1 Corporate Governance of state owned enterprises 2 Key aspects in Central Bank Governance and framework at the Bundesbank 3 Independence and Governance

4 1 Corporate Governance of state owned enterprises OECD published Guidelines on Corporate Governance of stateowned enterprises in 2005 Ensuring an Effective Legal and Regulatory Framework for State-Owned Enterprises The State Acting as an Owner Equitable Treatment of Shareholders Relations with Stakeholders Transparency and Disclosure The Responsibilities of the Boards of State-Owned Enterprises

5 1 Corporate Governance of state owned enterprises Ensuring an Effective Legal and Regulatory Framework for State-Owned Enterprises The legal and regulatory framework for state-owned enterprises should ensure a level-playing field in markets where state-owned enterprises and private sector companies compete in order to avoid market distortions. The framework should build on, and be fully compatible with, the OECD Principles of Corporate Governance. set of central bank tasks

6 1 Corporate Governance of state owned enterprises The State Acting as an Owner The state should act as an informed and active owner and establish a clear and consistent ownership policy, ensuring that the governance of state-owned enterprises is carried out in a transparent and accountable manner, with the necessary degree of professionalism and effectiveness. legislative and governmental issues with regard to the central bank

7 1 Corporate Governance of state owned enterprises Equitable Treatment of Shareholders The state and state-owned enterprises should recognise the rights of all shareholders and in accordance with the OECD Principles of Corporate Governance ensure their equitable treatment and equal access to corporate information. (share- and) stakeholders of a central bank

8 1 Corporate Governance of state owned enterprises Relations with Stakeholders The state ownership policy should fully recognise the state owned enterprises responsibilities towards stakeholders and request that they report on their relations with stakeholders. stakeholders of a central bank

9 1 Corporate Governance of state owned enterprises Transparency and Disclosure State-owned enterprises should observe high standards of transparency in accordance with the OECD Principles of Corporate Governance. transparency, credibility, accountability of a central bank

10 1 Corporate Governance of state owned enterprises The Responsibilities of the Boards of State-Owned Enterprises The boards of state-owned enterprises should have the necessary authority, competencies and objectivity to carry out their function of strategic guidance and monitoring of management. They should act with integrity and be held accountable for their actions. rules for decision making bodies of a central bank

11 Role of Corporate Governance: allow to fulfil statutory functions of central bank Regular Corporate Governance principles for SoE remain valid for CBs as well BUT specific central bank solution to specific central bank challenges (e. g. because of independence)

12 Agenda 1 Corporate Governance of state owned enterprises 2 Key aspects in Central Bank Governance and framework at the Bundesbank 3 Independence and Governance

13 2 Key aspects in Central Bank Governance and unique challenges to central banks broad and diffuse range of stakeholders relationship between central banks and their owners (the public) is intermediated through politicians with own interests not competition or threats of takeover, which punish weak management in private sector disparate range of policy functions, which complicates the evaluation of the performance product is price stability public good free-rider problem some control mechanisms not applicable

14 2 Key aspects in Central Bank Governance and Different corporate governance problems in the past Typical issues at central banks in the past: remuneration of bank officials (Dutch cb pensions) biased regulatory decisions (Fazio) control over governor appointments (Slovenia) code of conduct (Welteke) Identification of the following key aspects

15 2 Key aspects in Central Bank Governance and 1. set of central bank tasks key aspects 5. relationship with stakeholders 2. rules for decision making bodies 4. transparency, credibility, accountability 3. legislative and governmental issues

16 1. set of central banks tasks: key objectives common functions of central banks (according to BIS survey) monetary policy exchange rate supply of reserve money accounts for banks oversight of the payments system stability of the financial system government s banker development of the financial sector foreign exchange reserve management general economic advice quasi-fiscal and economic development functions consumer protection distribution and circulation of banknotes performance evaluation difficult

17 1. set of central bank tasks: Deutsche Bundesbank Key objectives (and range of tasks) maintain price stability (monetary policy) stability of the financial and monetary system (financial and banking supervision) hold and manage the foreign reserves of the Federal Republic of Germany (asset management) arrange for the execution of domestic and cross border payments, built confidence in the euro (cash management) contribute to the stability of payment and clearing systems (cashless payments)

18 2. Rules for decision-making bodies Key questions for set-up of decision-making Design of decision-making structures is at the heart of any governance arrangement! Is decision authority given to individuals or to groups? If Groups: degree of specialisation? number of formally constituted boards? role and relationship between them? When is it valuable to bring outsiders to sit on boards? Optimal size for a board

19 2. Rules for decision-making bodies Key questions for set-up of decision-making Legal statute of the central bank specifies the decision-making body or bodies of the institution, how these bodies are constituted, and what they are responsible for. The types of decisions that the central bank makes fall broadly into three categories: Policy formulation and implementation Policy Boards Management and administration Management/Executive Boards Oversight of institution s performance Supervisory Boards Other policy or advisory boards: e. g. employee compensation, auditing, risk management, investment of assets

20 2. Rules for decision-making bodies BIS-report (2009): Sample of 47 central banks

21 2. Rules for decision-making bodies Key questions for set-up of decision-making BIS-report (2009) CG-Literature: tends to favour the separation of roles of the chairman of the supervisory board and the chief executive officer (appropriate checks and balances) Possible conflicts of interest: review of bank s operation and management, oversee autits, risk management strategies, set governor s salary

22 2. Rules for decision-making bodies Implementation/status quo at Deutsche Bundesbank: decisionmaking rules Lean structure: Executive Board as sole governing board, discharging several functions High responsibility of Head of Departments No Supervisory or other policy boards nevertheless, typical functions of these boards are conducted in other ways (e. g. through Federal Court of Auditors) Advisory Board in regional offices (exchange of information to keep in touch with local economy; no decisions)

23 2. Rules for decision-making bodies Implementation/status quo at Deutsche Bundesbank: decisionmaking rules Code of conduct for the executive board Duties of a member of the executive board Contract of employment and Bundesbank Act also define a framework for members of the executive board External officer monitors compliance with these rules Bundesbank s President is also subject to code of conduct for the members of the Governing Council Internal rules to smooth work (rules for meetings, allocation of duties) Appointment of members of executive board

24 2. Rules for decision-making bodies Implementation/status quo at Deutsche Bundesbank: decisionmaking rules Conclusion: Lean set-up has proven appropriate for needs of the Bundesbank/Germany in the past! But: no panacea, needs and circumstances are different in every country! Possible further considerations: - specialisation benefits - internal accountability structure -operational efficiency / degree of complexity -availability of suitable board members / experts

25 3. Legislative and governmental issues a. Legal form of a central bank Level of law (defined in constitution, act of parliament, treaty high level: protection (institutional independence) low level: easy to amend Public versus private law

26 3. Legislative and governmental issues b. Ownership of a central bank Public versus private ownership Vast majority publicly owned

27 3. Legislative and governmental issues c. independence Personal aspects Financial and bugetary aspects Organisational and functional aspects lending to public authorities

28 3. Legislative and governmental issues Implementation/status quo at Deutsche Bundesbank Legal form: Founded in 1957 ( Bundesbank Act ); Art. 88 German Constitution; European Treaty Ownership: fully owned by state/public sector Full independence e. g. in monetary policy issues; personal, organisational and budgetary aspects; no lending to public sector But: Assessments of Federal Court of Auditors ( Bundesrechnungshof ), compliance with Haushaltsgrundsätzegesetz

29 3. Legislative and governmental issues Implementation/status quo at Deutsche Bundesbank No supervisory board at Deutsche Bundesbank But: certain surveillance/control through public authorities, e. g.: Federal Court of Auditors and Ministry of Finance get: annual accounts standard cost accounts investment plan comparison budgeted figures vs. actual costs and investments auditors report Parliament (Bundestag, Lower House) gets parts of these figures, too.

30 4. Transparancy, credibility, accountability General requirements for good governance Kind of internal and external audit Public access to internal information Range of transparancy Efficiency (e. g. law on budgetary procedures ; Haushaltsgrundsätzegesetz)

31 4. Transparency, credibility, accountability Implementation/status quo at Deutsche Bundesbank: External Audits External auditors are appointed by the executive board (currently: Ernst & Young) Agreement with the Federal Court of Auditors and compliance with Eurosystem rules ( Good practices for the selection and mandate of external auditors ) External auditors audit the annual accounts; annual publication Report of external auditor serves as a basis for the audit of the Federal Court of Auditors

32 4. Transparency, credibility, accountability Implementation/status quo at Deutsche Bundesbank: Internal Audits Independent and objective monitoring and advice Assistance to the Executive Board Systemic monitoring approach to ensure an effective risk management, monitoring and control system Covers all business areas

33 4. Transparency, credibility, accountability Implementation/status quo at Deutsche Bundesbank: public access to internal information Bundesbank is subject to a freedom of information act Public has in principle the right to get internal information and documents Nevertheless, many exceptions Information are chargeable

34 4. Transparency, credibility, accountability Implementation/status quo at Deutsche Bundesbank: range of transparency Bundesbank publishes a wide range of documents Monthly report Annual report Financial stability report Research papers Speeches of Executive Board members Education tools etc

35 4. Transparency, credibility, accountability Implementation/status quo at Deutsche Bundesbank: efficiency Bundesbank has done several steps to enhance efficiency structural reform (2002) first strategic cycle ( ) reduction of the number of branches by 60 % reduction of staff members by 30 % reduction of management staff by 40 % second strategic cycle ( ) continue the consolidation process (extended until 2015) raise the Bundesbank s profile

36 2 Key aspects in Central Bank Governance and 5. Stakeholders

37 2 Key aspects in Central Bank Governance and 5. Stakeholders other CBs (Eurosystem/ ECB) stakeholders government (twofold) commercial banks private competitors general public

38 5. Stakeholders Implementation/status quo at Deutsche Bundesbank: anti-fraud measures Compliance Officer and compliance framework Procurement rules Tense system of internal rules concerning the cash management (including video recording at workplaces)

39 5. Stakeholders Implementation/status quo at Deutsche Bundesbank: anti-corruption Rules for civil servants concerning gifts Officer to prevent corruption Rules of the government regarding the prevention of corruption in the public administration Criminal law

40 5. Stakeholders Implementation/status quo at Deutsche Bundesbank: anti-money laundering Bundesbank is subject to an act against money laundering ( Geldwäschegesetz ) Officer to prevent money laundering Identification measures in place, e. g. Identification of depositors Central database of depositors

41 5. Stakeholders Implementation/status quo at Deutsche Bundesbank: behaviour of staff Statuory obligations and other rules, e. g. neutral fulfilment of duties prohibition to accept gifts duty to announce secondary employments professional discretion behaviour after work Code of Conduct for Employees

42 5. Stakeholders Implementation/status quo at Deutsche Bundesbank: common identity corporate design staff journal sport facilities

43 5. Stakeholders Implementation/status quo at Deutsche Bundesbank: procurement matters Bundesbank is subject to federal procurement law Neutral choice of contract partners Potential partners can appeal a neutral office if they feel their rights hurt

44 Agenda 1 Corporate Governance of state owned enterprises 2 Key aspects in Central Bank Governance and framework at the Bundesbank 3 Independence and Governance

45 3 Independence and Governance Independence is the autonomy of a central bank in respect to: personnel aspects financial and budgetary aspects organisational aspects lending to the public authorities

46 3 Independence and Governance Good Corporate governance framework and independence Clear specification of the objectives of the central bank Clear division of responsibilities between the central bank and the government Widespread perception in the country that central bank is well run central bank autonomy must be used responsibly

47 Questions?