Profit distribution and loss coverage rules for central banks

Werner Studener, Niall Merriman, Polychronis Karakitsos and Daniela Bunea

No 169, Occasional Paper Series from European Central Bank

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

Keywords: accounting framework; financial independence; financial strength; loss coverage; profit distribution (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-acc, nep-cba, nep-mon and nep-rmg
Note: 494421
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:2016169

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