Independence with accountability: financial system regulation and the Reserve Bank

Chris Hunt
Additional contact information
Chris Hunt: Reserve Bank of New Zealand, http://www.rbnz.govt.nz

Reserve Bank of New Zealand Bulletin, 2017, vol. 80, No 11

Abstract: This article discusses the rationale for various financial system-related functions and objectives to be ‘delegated’ to an independent agency, whether a central bank (as in the case of the Reserve Bank) or a separate supervisory authority. The delegation of these tasks marks a form of precommitment on the part of government to the long-run goal of financial stability. This pre-commitment helps reduce the risk of politicisation of policy making and the ‘time inconsistency’ problem – where government may understand the long-term benefits to society from financial stability, but may act in contrary ways over the short-term. However, the decision-makers heading these agencies are unelected. To compensate for this and the potential creation of a ‘democratic deficit’, independent agencies must demonstrate that they contribute to better outcomes than would otherwise prevail if they were not independent, while enshrining a high degree of ‘procedural legitimacy’ based on robust accountability arrangements. In the financial policy sphere, the construction of robust accountability arrangements can be challenging. Financial system objectives such as ‘soundness’ and ‘efficiency’ are not easily amenable to quantification.

Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.rbnz.govt.nz/-/media/ReserveBank/Files ... 017/2017Dec80-11.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nzb:nzbbul:dec2017:11

Access Statistics for this article

More articles in Reserve Bank of New Zealand Bulletin from Reserve Bank of New Zealand Contact information at EDIRC.
Bibliographic data for series maintained by Reserve Bank of New Zealand Knowledge Centre ().