Research On The Internal Governance Of Central Banking

As the core of the financial institutions,the central bank has a profound impact on the economic system and the financial system.Since the end of the 1980 s,many changes occurred in the development trend of the central bank,especially the prevalence of Inflation Targeting Regime enhanced central bank independence,began to reveal the mysterious veil with central bank communication,and accept the supervision and accountability from the government.Nevertheless,central banks in practice of the world still has a big difference in its goals,functions,decision-making,policy tools and so on,which is in sharp contrast to other financial institutions with a common governance framework and standards.For example,the Basel III Accord developed by the Basel Committee on Banking Supervision has become an important criterion of banking supervision and management of commercial bank.The Objectives and Principles of Securities Regulatory established by International Organization of Securities Commissions provide professional guidance for national securities supervision and standardizing the operation of securities institutions.International Association of Insurance Supervisors issued the Insurance Core Principles for insurance supervision and insurance institutions to provide a good governance framework.International Association of Deposit Insurers issued the Core Principles for Effective Deposit Insurance Systems,which has become an important reference for international organizations such as the World bank and IMF,and relevant countries in implementation and evaluation of the deposit insurance system.For the reasons given above,the Bank for International Settlements launched the Central Bank Governance Forum in 1990 s,composed of the Central Bank Governance Group and Central Bank Governance Network,to promote the central banks to realize good governance.At the same time,academic explorations on many issues of central bank governance have also been carried out.But there are so many subjects about the issue of central bank governance that the existing researches mainly focus on the independence,transparency and accountability,which belong to external governance,while internal governance of central bank seems to have received little attention,because of lack of systematic framework and detailed analysis of the related issues.In this context,this paper attempts to put forward the analytical framework for internal governance of central bank and carry out in-depth research on the pillar problems in the framework.Based on the existing literatures about the central bank governance problems dividing the “central bank governance” into “internal governance” and “external governance”,this paper redefines the two concepts exactly,regarding the organizational structure,decision-making mechanism,the availability of financial resources and financial strength as the three pillars of framework for internal governance of central bank.Furtherly,the author clarify that central bank decision mechanism about financial stability policy during crisis times and day-to-day management,together with hierarchical problems of organizational structure,does not constitute major fields in this paper.Thus,the three pillars of the central bank internal governance factors in research framework can specify regional structure of organization,mechanism for monetary policy decision-making and financial strength,which are the main contents and objects researched.The definition of relevant concepts and research framework,explanation about research content and the introduction of the structure of the article constitute the first chapter of this paper.About the research of the structure of regional organization in the central bank internal governance framework,this paper firstly analyzes the institutional arrangements and functions of regional organization in central bank system under different central bank institutional arrangements and functions,and point out that the role of regional organization lies in four aspects as follows: the regional information collection and feedback,to deal with the regional effects of monetary policy and adopt differentiated monetary policy strategy,convenient financial services management,to ensure democracy of central bank with more population in larger territorial scope.Then,considering public appeal for reforming the Fed after the global financial crisis and the PBo C after the regional adjustment in 1998,this paper put comparative and historical analysis on the organization structure evolution between the Fed and the PBo C in perspective of power struggle.The results show that there is a substitutional relationship between power adjustment and organization reconstruction of regional organizations in the two central banks.By and large,the Fed retains the initial regional structure through early decision-making power adjustment between the Board of Governors and Federal Reserve Banks,and the PBo C still maintains the basic regional structure after the regional adjustment in 1998 by adjusting the power boundaries between the regional branch and capital cities' central sub-branch which lies in the non-branch province.In particular,drawing lessons from the local governance mechanism of “administrative localization of officials,‘political tournament' with GDP growth at its core,economic growth ”in existing literatures,the paper put forward that the current separation of performance evaluation from officials appointment has an negative influences on the whole performance in regional organization system of PBo C.About the research of monetary policy micro-decision issues in the central bank internal governance framework,on the bisis of reviewing the evolution of decision-making mechanism in central banking,the author analyzes the advantages and disadvantages of Monetary Policy Committees(MPCs)than individual decision,the type and the optimal scale,the member structure and other behavior characteristics of MPCs.Result provide evidence to support as follows.Firstly,the advantages of committees' collective decisions lies mainly in four aspects: the integration of diversity of knowledge and information,enlightenment decision from different decision makers,to avoid extreme standpoint and reduce the fluctuations of policy decision results.The weaknesses of MPCs decision are mainly “free rider” and “groupthink”.But the opportunism behivior tendencies of “free rider” hardly appear,as the organization size of MPCs usually did not reach “collective action dilemma”defined by Mancur Olsen,technocratic central bankers have favorable occupation and reputation mechanism restrain themself,and the rise of transparency together with accountability in central banking restricts the “free rider”.By contrast,the “groupthink” poses a threat to the MPCs decision-making through the information signal and reputation stress mechanism.Secondly,the type of MPCs not only divided into collegial committee,autocratically collegial committee and genuinely collegial committee in accordance with the voting rules and the role of leader in MPCs,but also can be recompose of once decision and tandem decision according to policy decision steps.The optimal scale of MPCs is influenced by many factors,such as the size of the country,the degree of population heterogeneity,the political system,the level of economic development and the exchange rate system arrangement.Thirdly,the optimum configuration of MPCs composed of internal members and external membes relies heavily on the MPCs' size.The asymmetric substitution effect existes between MPCs' member structure and organization size,that is,larger homogeneous MPC or smaller heterogenous MPC may be the best choice.Fourthly,if MPCs enrol many regional representatives to participate in the monetary policy decision-making under given organization size,the rotation mechanism of voting rights could be adopted.The mechanism contributes to regional information sharing accompanied by the potential institutional cost of “prisoner's dilemma”.About the research of monetary policy micro-decision issues in the central bank internal governance framework,the paper in a the central bank balance sheet characteristics' perspective interprets the connotation of central bank financial strength to four aspects,emphasizing the ultimate measure with the realization degree of target functions,persistent ability to provide funds for policy operations,putting a lot of emphasis on the communication with the government and the market,and appropriate financial resources matching its target functions.Then a framework for central bank financial strength analysis is put forward,that is,“target functions,financial risk,risk transfer and share”,respectively to study the effect of central bank's target functions on its financial strength,the mechanism of risk transfer and profit distribution,accounting standards in central banking.Finally,on the basis of characteristics of PBo C's balance sheet,some policy suggestions are given to strengthen its financial strength.