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This open access book provides a comprehensive overview of the vulnerabilities of central banks' financial accounts and the implications for central bank capital and risk management in turbulent times. By combining the perspectives of academics, risk managers and policy makers, it sheds light on the complex challenges facing central banks and offers key insights into safeguarding the stability of financial systems in an uncertain future. In an era of heightened uncertainty, central banks face unprecedented risks. Following consecutive crises, they have expanded their monetary policy toolkit through quantitative easing and credit extension, which has bloated their balance sheets and exposed them to substantial risks. Moreover, central banks are confronting novel challenges like climate change and nature loss, which threaten their objectives of price stability and financial stability. At the same time, central banks find themselves in a precarious position, as they raise interest rates to combat inflation, generating financial losses on their asset portfolios. These losses threaten to erode their capitalization, a cornerstone of central bank independence and credibility.
List of contents
Central bank capital adequacy: the simple analytics and complex politics.- Central Bank Capital and Trust in Money: Lessons from History for the Digital Age.- Accounting policies, distribution rules and the financial performance of central banks.- Fiscal Consequences of Central Bank Losses.- Central bank capital and shareholder relationship.- Consequences of Last Resort Policy for Central Bank Balance Sheets.- New Perspectives on Quantitative Easing and Central Bank Capital Policies.- Central bank capital and independence: a quantitative case study.- The impact of central bank digital currency on central bank profitability, risk taking and capital.- Impact of Transitions on the Financial Stability and LOLR Roles of Central Banks.- Through the Lens of Legal Mandate: Central Bank Capital in a Time of Climate Crisis.
About the author
Dirk Broeders is a Senior Lead Financial Risk Expert at the European Central Bank (ECB), currently on secondment from the Risk Management Department of De Nederlandsche Bank (DNB). He is also a Professor of Finance at the School of Business and Economics at Maastricht University in the Netherlands. He is a former Executive Member of the International Organisation of Pension Supervisors and Fellow at the Financial Stability Institute of the Bank for International Settlements. He received his PhD in 2010 from Tilburg University and has published widely on finance.
Aerdt Houben is Director of European Bank Supervision at De Nederlandsche Bank (DNB) Prior to this, he headed DNB´s Financial Markets Division, Financial Stability Division, its Supervisory Strategy Department and its Monetary Policy Department. He has worked at the IMF, in the Policy Development and Review Department. He currently chairs the Committee on Financial Markets at the OECD and is a member of the Committee on the Global Financial System and the Markets Committee at the BIS. He has been a member of the Basel Committee on Banking Supervision, the Financial Stability Committee of the ECB and the International Organisation of Pension Supervisors as well as numerous other policy committees in the context of the IMF, Financial Stability Board, ECB and the ESRB. Aerdt Houben is Professor for 'Financial Policies, Institutions and Markets´ at the University of Amsterdam, The Netherlands. He has a PhD in monetary economics and has published broadly on financial issues
Matteo Bonetti is a financial economist in the Financial Markets Division of De Nederlandsche Bank (DNB). He earned his PhD in Finance from the School of Business and Economics at Maastricht University. His research focuses on exploring the design and governance factors that influence institutional investors' investments and performance. At DNB, Matteo Bonetti’s policy work involves the assessment of financial and climate risks for both De Nederlandsche Bank and the Eurosystem.
