Why accounting matters: a central bank perspective

Werner Studener, Niall Merriman, Claudia Schwarz and Polychronis Karakitsos

No 153, Occasional Paper Series from European Central Bank

Abstract: This paper analyses how accounting frameworks can affect three important areas of responsibility of many central banks, namely monetary policy, financial stability and banking supervision. The identified effects of accounting rules and accounting information on the activities of a central bank are manifold. First, the effectiveness of monetary policy crucially hinges on the financial independence of a central bank, which can be evidenced, inter alia, by its financial strength. Using a new simulation of the financial results of the European Central Bank (ECB), this paper shows that the reported annual profit and financial buffers of a central bank can be significantly affected by accounting, profit distribution and loss coverage rules. Second, in respect of financial stability, the accounting frameworks applied by commercial banks can not only affect their behaviour, but also that of financial markets. Indeed, there is evidence that accounting frameworks amplified pro-cyclicality during the recent crisis, and thus posed risks to the stability of the financial system. This being so, the accounting frameworks of credit institutions have obvious implications for central banks JEL Classification: E58, M41, M48

Keywords: accounting standards; banking supervision; central bank balance sheet; financial reporting; Financial Stability (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-acc, nep-cba, nep-eec and nep-mon
Note: 494421
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Journal Article: Why Accounting Matters: A Central Bank Perspective (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:2014153

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