Current Developments in Monetary and Financial Law, Vol. 3

CHAPTER 22 Supervisory Boards in Some Central Banks

International Monetary Fund
Published Date:
April 2005
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Central banks in many countries are currently, or have been, in the process of developing autonomy, or independence from political bodies while carrying out monetary policy and related issues. This is a development that is underpinned by a uniform view among the majority of renowned macroeconomists around the world that monetary policy is most efficiently conducted by independent or autonomous central banks. It is based on the assumption, supported by experience and research over at least two decades, that policital bodies in modern democracies often experience difficulty resisting pressure, which prevents them from making unpopular but long-term economically favorable monetary policy decisions.

This view is also widely accepted in most countries by political establishments. It means, however, that the statutes of the central bank need to undergo fundamental amendments by parliament and/or the government. Because the government in many countries is considered by the general public politically responsible for all public sector agencies, it may be difficult to gather sufficient political support for legislative amendments that remove political power over the central bank, making it independent from political bodies. The political authorities will no longer have control over the central bank, but, in the mind of the electorate, they will still be politically responsible for its actions or nonactions. Independence must be counterbalanced by accountability. One of the main issues concerning central bank independence is where to strike the proper balance between independence and accountability. The central bank law should explicitly state a clear statutory objective (e.g., price stability) but also give the central bank authority to make all necessary decisions to formulate and implement the monetary policy to attain that objective. This power delegated to it, however, must be counterbalanced by accountability. The central bank must not become “a state within the state.”

Central bank laws are currently under review in many countries where such a proper balance is discussed. In the following discussion, the concept of a Supervisory Board, which already exists in some countries, is examined as a possible mechanism to provide for a good balance between central bank independence and accountability.

Some Major Features of Central Bank Independence

According to international standards and practices, the major features of central bank independence are divided into four categories: institutional, personal, functional, and financial. Some features of the categories are listed below.

Institutional Independence

Institutional independence involves prohibiting the central bank from seeking or taking instructions from outside sources, complemented by a prohibition on political authorities from issuing binding instructions to the central bank on key monetary policy tasks, which include the following: defining and implementing monetary policy, conducting foreign exhange operations, holding and managing foreign reserves, and promoting the smooth operation of payment systems. However, these prohibitions do not prevent open discussions in parliament or with any other bodies or individuals on monetary policy issues. On the contrary, open monetary policy discussions are welcomed. The central bank management is encouraged to take an active part in such discussions, presenting its arguments or its views on how the price stability objective should be attained, justifying itself, and listening to the opinions of other people or groups of people in the society. But it should remain autonomous and make its monetary policy decisions on attaining its statutory price stability objective independently. Is this democratically acceptable? Of course it is. If parliament feels that monetary policy should be guided by another statutory objective, all it has to do is to amend the central bank law, strictly observing, however, proper procedures on openness and related concerns.

Outside parties should not be allowed to approve, suspend, annul, or defer decisions by the central bank. Participation of representatives of other bodies in the decision-making bodies of the central bank is acceptable only if they have no right to vote. There should be no statutory obligation for the central bank to consult (ex ante) with political authorities on central bank issues. This does not preclude, however, a dialogue between the central bank and political authorities, provided it does not interfere with the independence of members of the decision-making bodies of the central bank.

Personal Independence

The minimum term of office for the members of the decision-making bodies of the central bank should exceed the term of office of parliament between general elections and should be at least five years.

The Governor and other members of the decision-making bodies of the central bank should be protected against dismissal on discretionary grounds. Dismissal should be permitted only if the person no longer fulfills the conditions required for the performance of his duties, laid down in law, or if the person is judged guilty of serious misconduct (criminality). The reasons for dismissal should be published. Such a dismissed person should have the right to have the Supreme Court examine the legality in the decision and to declare it, if required, null and void. Naturally, membership in a decision-making body is incompatible with the exercise of other functions that might create a conflict of interest.

Functional Independence

There should be a statutory objective to ensure or maintain price stability. If other objectives are also mentioned, price stability should be the primary objective. In addition, the implementation of monetary policy by application of monetary instruments available by law should be done independently from outside parties.

Another feature that may be put into this category is the crucial prohibition against central bank lending to the government, both centrally and locally. This prohibition includes both advances and credits, as well as purchases by the central bank of government securities on the primary market. This does not, however, prevent the central bank from purchasing government securities on the secondary market at market rates for monetary policy purposes. Furthermore, all central bank lending should, as a matter of principle, be made against adequate collateral.

Financial Independence

The budget of the central bank should be adopted by the central bank itself and should not require the approval of political authorities. The central bank should be in a position to avail itself of appropriate economic means to fulfill its mandate properly. Rules governing the distribution of profits should be stated in a transparent and foreseeable manner. This does not mean that profits, or parts thereof, may not be appropriated to the government budget.

Central Bank Accountability and Transparency

Accountability and transparency go hand in hand with central bank independence according to international standards and practices. Widened competence to make decisions by the central bank requires increased accountability and enhanced transparency. The credibility and the legitimacy of the central bank is fundamental to the central bank’s ability to function efficiently and to preserve its position as an independent institution worthy of the independent nature delegated and entrusted to it. Some of the major features are discussed below.


An annual report should be submitted to the proper political authorities on the previous year’s performance and should comprise not only the accounting of the central bank, such as the balance sheet and the profit and loss account, but also a report qualifying if and how the statutory objectives have been attained. Quarterly reports and a report on the prospects for the coming year should also be submitted. Such reporting should be complemented by oral hearings (public or nonpublic) of the Governor (and other members of the decision-making body) at least once a year. In order to strengthen the accountability of the central bank, it is further essential to make necessary arrangements for external auditing procedures that meet the high international standards of auditors experienced in auditing central banks.


In order to strengthen the central bank’s credibility, accounting procedures should meet high standards and ensure public access to correct and complete data on the central bank’s financial status. Regular reports should explain monetary policy decisions and present the central bank’s evaluation of the prevailing situation on financial stability. Transparency on monetary policy issues may further be enhanced by making the deliberations of the decision-making body public by publishing the minutes of its meetings. The central bank shall further be encouraged to publish or make available upon request to the extent possible, taking into account the central bank’s objectively legitimate interests, any documents on the activities of the central bank. The Governor and other members of the decision-making body should be encouraged to participate in public discussions on monetary policy issues and to invite outside representatives of, for example, the public sector, the business community, academia, and the mass media to contribute to the discussion on monetary and financial stability policies conducted by the central bank.

The Credibility and the Legitimacy of the Central Bank

The credibility and the legitimacy of the central bank are perhaps its most significant assets. Weakening credibility or legitimacy would make it, in fact, impossible for the central bank to achieve its objective efficiently. Its measures taken would not meet with the desired response, and the central bank would, in fact, risk becoming, to some extent, a lame duck.

The scope of the central bank’s ability to maintain price stability and to efficiently promote the financial stability in the country depends on its credibility and legitimacy. If it is viewed as acting professionally and with competence, its actions will be trusted, understood, and accepted by key institutions in society such as trade unions, employers, and the business and financial community. Their reaction to its monetary policy decisions will be in line with its macroeconomic forecasts. If, on the other hand, this is not the case, the central bank has a major problem. When there are doubts about the ability of the central bank to conduct an antiinflationary monetary policy, interest rates will be higher than they would have otherwise been, as investors need to request an interest rate margin to compensate them for anticipated future inflation rates. If this happens, the only real option is often for the Governor and other members of the central bank management to step down. The central bank would be hampered by a lack of sufficient credibility, and its management would, ultimately, need to allow the political authorities to appoint other people to manage the central bank in order to restore its credibility and to make it work efficiently again. The statutory option to formally dismiss the Governor and his colleagues is, therefore, in many countries not expected to be frequently used.

For this reason, the accountability and the transparency of the central bank are, on the one hand, closely linked and, on the other, important, not only in and of themselves, but also as a counterbalance to the independent nature of an autonomous central bank. An open and transparent central bank allows public scrutiny and assessment of its policies, and its credibility, as a consequence, is strengthened.

A Tool to Strengthen Accountability and Transparency?

Political establishments in most countries may accept the loss of some power within the area of monetary and financial policy by delegating power over monetary policy to the central bank. If monetary policy issues are accepted by all political parties to be kept out of the political arena, such issues will no longer be a useful tool in the political domestic debate.

This is also valid in most countries where the governance structure entails political responsibility of the Minister for any decision by an agency under his ministry. Such a structure makes it necessary for the Minister of Finance to closely monitor the central bank, as it does any other agency under the Ministry of Finance, and to give ex ante approval to major monetary policy decisions. If the central bank is transformed into an independent institution, the Minister would need to relinquish the decision-making role for the central bank. The Minister may still, in the eyes of the general public, for some time be considered politically responsible for the decisions made by an independent central bank. But over time, the general public may be expected to understand that the government is no longer politically responsible for the decisions of the autonomous central bank. Like the courts, the central bank will make its decisions empowered by law and within the statutory limits as specified by the parliament. The government is not blamed for unpopular decisions of the courts, which apply laws independently from the government. Legal matters are decided by the courts’ decisions. If the courts apply the law contrary to public sentiment, the laws should be amended, not the court decisions. Similarily, governments should not to be made responsible for monetary policy decisions of independent central banks. The political tool to change the policy pursued by the central bank is identical to the legal instrument by which future decision making by the courts is to be amended, namely, by legislation. In such a process, which should be open and transparent, the issues are thoroughly discussed and a decision by parliament is ultimately reached in accordance with normal democratic principles.

Any deviation from major international standards and practices for independent central banks, for example, the primary price stability objective or other amendments weakening their independence, might be harmful to central banks’ credibility, domestically and abroad, implying a prohibitive cost, and is therefore not a realistic option for the political authorities. What is obvious, of course, is the need to select people to govern the central bank who are acceptable to all main political parties. They should be selected not on political but on professional grounds only, based on their competence and personal merits. The appointment procedure is important, and its efficiency as an accountability tool may be further enhanced by staggered terms of office of the Governor and the other Bank Board members, allowing for more frequent assessments of their performance. In addition, it would strengthen the continuity of the management of the central bank, which also is essential.

The establishment of a Supervisory Board might be another useful mechanism in some countries to further monitor the management of the central bank and to increase its accountability.

The Supervisory Board Option

For the above-mentioned reasons, additional tools to strengthen the accountability of the central bank merit analysis. Supervisory Boards might serve such a purpose. In some central banks Supervisory Boards have been established in order to increase transparency and accountability, not necessarily, though, with the explicit aim to counterbalance the independence of the central bank. The reasons are more often to be found in the history of the central bank or in the governance structure of stock corporations in those jurisdictions.

The Supervisory Board is to be understood in the following discussion as a board consisting of outside representatives of the owners of the central bank, be they parliamentarians or other representatives of the owners of the central bank as part of public sector agencies or public sector stock corporations.

The role of the Supervisory Board may differ within individual countries, but a common purpose involves increased monitoring by its members of the management of the central bank and providing the owners of the central bank with reports on its findings. This role may be enhanced by empowering the Supervisory Board with authority to, for example, appoint or nominate the Governor and other Bank Board members; determine the salaries and other employment benefits of the Bank Board members; and determine the budget, organization, and accounting principles to be applied.

Some Illustrative Examples

As indicated above, existing Supervisory Board structures can be found in countries where history or tradition may explain the adoption of such structures.

That is the case in northern Europe, where the Swedish central bank, founded in 1668, has from its establishment been an agency directly under the parliament and not under the government (formerly the King). Because parliaments do not normally have at their disposal an appropriate organization or staff to handle and administer an agency such as the central bank—their primary task is, after all, to discuss and adopt laws—the administration of the central bank has been organized in various ways over the years. At first, a Standing Bank Committee within the parliament was responsible for the administration of the central bank; later a Governing Board consisting of parliamentarians was established, meeting usually once a week, with an Executive Board meeting more frequently, where two members of the Governing Board joined the Governor and the Deputy Governor. A new structure has been in place since 1999 as a result of Sweden’s EU membership and its obligations according to the Maastricht Treaty to make its central bank independent.

Supervisory Boards also exist in some other countries where a central bank has been established as a stock corporation, the shareholders of which are often the government, together with local governments or business organizations, and where Supervisory Boards are customary according to the company laws in those jurisdictions.

The following descriptions of central bank management structures are based on the published but often unofficial translation into English of the law of each central bank. It should be noted that not all functions of a Supervisory Board are necessarily specified by law, and the degree of statutory specification may differ from one jurisdiction to the next. Additional functions may be regulated elsewhere, often as company laws or the central bank’s rules of procedure. Moreover, certain functions may not necessarily be regulated in any statutory form. Therefore, the following cannot with certainty be considered a comprehensive description of the current system at each of the central banks evaluated. Such an assessment would call for a more thorough investigation.

National Bank of Belgium

The organs of the National Bank of Belgium, which is a limited company, are the Governor, the Board of Directors, the Council of Regency, and the Board of Censors.

The Board of Directors

The Board, which consists of the Governor and five to seven Directors, is responsible for the administration and management of the Bank and determines, among other things, the direction of its policy. Its members are appointed by and can be dismissed by the King. Because Belgium is a member state of the euro area, the Board makes no monetary policy decisions; the Governor is a member of, and takes part in, the decision making of the European Central Bank (ECB) Governing Council.

The Council of Regency

The Council consists of 10 regents together with the Governor and the Directors. Its role is to “exchange views on general questions concerning the Bank, monetary policy and the economic situation of the country and the European Community” and “take cognizance every month of the situation of the institution.” Its other tasks include the adoption of internal regulations containing the basic rules for the operation of the Bank’s organs and the organization of its departments, services, and outside offices. It decides on the individual salaries and pensions of the members of the Board of Directors, approves the expenditure budget and the annual accounts, and determines the distribution of profits proposed by the Board. The Council makes proposals for the appointment of the members of the Board of Directors, except the Governor.

The 10 regents are appointed by the General Meeting of shareholders on proposal by the Minister of Finance (5 persons), by labor organizations (2 persons), and by organizations from industry and commerce, agriculture and small firms, and traders (3 persons).


The Council of Regency is a decision-making body with supervisory tasks (Supervisory Board). The majority of its members are outside representatives of the Bank and shareholders with certain powers to influence the organization of the Bank and to determine the budget, the distribution of its profits, and other related matters.

Danmarks Nationalbank (The National Bank of Denmark)

The management of the Bank is handled by a Board of Directors, a Committee of Directors, and a Board of Governors.

The Board of Governors

The Board of Governors consists of three members appointed by the Board of Directors; the chairman is nominated by the King, while the two other Governors are appointed upon recommendation by the Committee of Directors. The Board of Governors is responsible for the daily management of the Bank. Because Denmark is not a member state of the euro area, the Governor takes no part in the decision making of the ECB Governing Council.

The Board of Directors

The Board of Directors consists of 25 members (8 members of parliament, 1 economist, 1 lawyer, and 15 other members with a thorough knowledge of trade) and meets at least once every three months. No person in the service of the Bank may be a member of the Board.

All matters of special importance that may be considered outside the domain of daily management are, to the greatest extent possible, submitted to the Board of Directors. The Board explicitly observes that the rules governing the functions of the Bank are honored. Its other tasks include the election of two Governors; the adoption of by-laws; the decision to establish or close branches; the determination of the salaries of the Bank’s staff, including those of the Governors; the examination of the annual accounts; and the determination of the application of the annual profit.

The Committee of Directors

The Committee of Directors is a body made up of seven members of the Board of Directors and meets at least once a month.

Because the Board of Directors meets less frequently, the Committee of Directors was established to monitor the more important functions of the Bank. The Committee of Directors and the Board of Governors mutually negotiate and deliberate on matters that are of a more general importance for the functions of the Bank. Any matter to be placed before the Board of Directors is first submitted to the Committee of Directors. The Committee’s other tasks include examining the Bank’s assets and liabilities, ensuring that write-offs and allocations are rendered in accordance with proper and prudent practices, and negotiating with the Royal Bank-Commissioner concerning the application of the yearly profits of the Bank.


The Board of Directors and the Committee of Directors are bodies with supervisory tasks (Supervisory Boards) in relation to the Board of Governors, and they have also been entrusted with certain decision making powers, for example, appointing two Governors and determining their salaries. One of the main functions of the Board and the Committee, however, seems to be to serve as a meeting place for representatives of the owner and the Board of Governors where views on monetary policy and other functions of the Bank can be exchanged.

Bank of Finland

The Bank of Finland’s governing bodies are the Parliamentary Supervisory Council and the Board, while the Bank operates under the supervision of the parliament.

The Board

The Board consists of the Chairman (the Governor of the Bank of Finland) and up to five other members appointed by the President of the Republic. The Board is responsible for the administration of the Bank and for the execution of the tasks assigned to it. It provides the Parliamentary Supervisory Council with information on a regular basis concerning the execution of monetary policy and other activities of the Bank. Because Finland is a member state of the euro area, the Board makes no monetary policy decisions; the Governor is a member of and takes part in the decision making of the ECB Governing Council.

The Parliamentary Supervisory Council

The Parliamentary Supervisory Council, which supervises the administration and the activities of the Bank of Finland, consists of nine members elected by Parliament. Some of the main tasks of the Council include the following:

  • Making proposals to the Council of State on the appointment of Board members;

  • Deciding on the issuance of warnings, with respect to the Bank’s administration, to members of the Board;

  • Deciding on the principles for determining the salaries, leaves of absence, and annual leave of Board members;

  • Appointing the Deputy Chairman of the Board and, upon proposal of the Board, directors of the Bank;

  • Confirming, upon proposal of the Board, the basic accounting principles and confirming the Bank’s balance sheet and profit and loss account; and

  • Reporting annually and as necessary to parliament on the Bank’s activities and administration.

The members of the Parliamentary Supervisory Council and the appropriate Committee of Parliament are entitled to receive the information needed to supervise operations of the Bank. The Board members are entitled to be present and to be heard at meetings of the Council.


The Parliamentary Supervisory Committee has been entrusted with a broad supervisory role in its relations with the Board (Supervisory Board). It appoints the Deputy Chairman of the Board, may issue warnings, proposes candidates as Board members, and decides the principles for determining their salaries, etc. It submits regular reports to Parliament which, based thereon, may take legislative action.

De Nederlandsche Bank N.V. (The Dutch Central Bank)

De Nederlandsche Bank is a limited company with a Governing Board, a Supervisory Board, and a Bank Council.

The Governing Board

The Governing Board is responsible for managing the Bank and consists of the President and at least three to five Executive Directors, all appointed by Royal Decree. Because the Netherlands is a member state of the euro area, the Board makes no monetary policy decisions; the President is a member of and takes part in the decision making of the ECB Governing Council.

The Supervisory Board

The Supervisory Board consists of 9 to 12 members, one of whom is appointed by the government and the others by the shareholders. The Supervisory Board supervises the management of the Bank’s affairs and adopts the annual accounts to be approved by the shareholders. The member appointed by the government may request information from the Governing Board, which is not confidential, and communicates his findings about the manner in which the Bank performs its tasks to the Minister of Finance. The Supervisory Board, at a joint meeting with the Governing Board, nominates three persons for each vacancy to be filled on the Governing Board.

The Bank Council

The Bank Council consists of 11 to 13 members, two of whom are members of the Supervisory Council (the government representative and one other member); the other members are appointed by the Bank Council. The Governing Board and the Treasurer-General attend the meetings of the Bank Council and may take part in the deliberations.

The President of the Governing Board reports to the Bank Council on the general economic and financial situation and discusses the policy conducted by the Bank with the Bank Council. Other matters raised by one or more of the members in connection with the Bank’s objectives, tasks, and activities may also be discussed.


The management of the Bank is supervised by the Supervisory Council, but it has not been empowered to make formal decisions such as appointment of members of the Governing Board, determination of their salaries, and so on. It is, however, involved in the nomination of candidates to Governing Board positions. Its main function is to receive reports by the President and to ensure that the government representative has access to additional nonconfidential information from the Bank management. The Bank Council has similar functions.

Norges Bank (The Central Bank of Norway)

The supreme authority in the Bank is vested in an Executive Board and a Supervisory Council. The Bank conducts its operations in accordance with the economic policy guidelines drawn up by the government authorities and with the country’s international commitments. Before making any decision of special importance, the Bank submits the matter to the ministry (designated by the government), in practice the Ministry of Finance.

The Executive Board

The Executive Board consists of seven members appointed by the King, who also determines their remuneration and pension benefits. During discussions on administrative matters, two additional members elected by and from Bank employees supplement the Executive Board.

The Executive Board is in charge of the Bank’s operations and manages its funds. The Governor is in charge of the Bank’s administration and the implementation of the decisions.

The Supervisory Council

The Supervisory Council consists of 15 members elected by Parliament. Members of Parliament, government ministers, state secretaries, and other political staff in ministries are not eligible to be members of the Supervisory Council. The remuneration of the Council members is determined by the King.

The Supervisory Council ensures that the rules governing the operations of the Bank are observed. It organizes the auditing of the Bank and draws up instructions for the Auditing Department. It adopts the annual accounts and, upon proposal by the Executive Board, approves the budget. The Council may decide that the production of banknotes and coins or other commercial activity within the scope of the law shall be performed by companies wholly or partly owned by the Bank; such companies are also supervised by the Council. It also establishes and closes branches of the Bank. The Supervisory Council issues a statement on the minutes of the meetings of the Executive Board and on matters submitted to it by the Executive Board. The budget is approved by the Supervisory Council, which also adopts the annual accounts. The annual report and the audited annual accounts, together with a statement on the minutes of meetings of the Executive Board, are sent by the Supervisory Council to the ministry for submission to the King and communication to Parliament. The ministry reports to Parliament concerning the activities of the Bank.

Members of the Executive Board are normally entitled, and the Governor and the Deputy Governor are obliged, to be present and to state their opinions at meetings of the Supervisory Council.


Norway is not a member state of the European Union and of the euro area. Its central bank is not, at present, independent from the government according to international standards. It has, however, a Supervisory Council appointed by parliament with certain decision-making powers.

Oesterreichische Nationalbank (The Austrian National Bank)

The Oesterreichische Nationalbank is a stock corporation that is the central bank of Austria. Its main decision-making bodies are the General Meeting, the General Council, and the Governing Board.

The Governing Board

The Governing Board, which comprises the Governor, the Vice Governor, and two other members, all appointed by the Federal President, is responsible for the overall running of the Bank and conducts the business of the Bank. Because Austria is a member state of the euro area, the Board makes no monetary policy decisions; the Governor is a member of and takes part in the decision making of the ECB Governing Council.

The General Council

The General Council consists of 14 members. The President, the Vice-President, and six other members are appointed by the Federal Government; the other members are elected by the General Meeting. In negotiations on personnel, social, and welfare matters, two representatives of the Bank employees are entitled to participate. The Council usually meets once a month.

The General Council is charged with the supervision of all business not falling within the remit of the European System of Central Banks. It advises (observing an explicit prohibition against instructing in the National Bank Act) the Governing Board in the conduct of the Bank’s business and in matters of monetary policy. Such joint meetings take place at least once each quarter.

The approval of the Council is required for, among other things, starting and discontinuing lines of business, establishing and closing down branch offices, acquiring and selling participating interests in real property, and appointing members of supervisory boards and executive bodies of companies of which the Bank is a shareholder.

The General Council develops, among other things, proposals to the Federal Government for appointments to the Governing Board by the Federal President, conditions of employment for the members of the Governing Board, annual accounts for submission to the General Meeting, approvals of cost estimates for the next financial year, and the rules of procedure for the General Council and the Governing Board.

The General Meeting

The General Meeting of shareholders receives a report from the General Council on the conduct of business during the previous financial year; approves the annual accounts and grants exoneration to the General Council and the Governing Board; decides on the allocation of profits; appoints Auditors; elects six members of the General Council; removes, if necessary, members of the General Council from office; and determines the remuneration of the President and Vice President of the General Council.


The General Council has supervisory functions over all business not falling within the remit of the European System of Central Banks (Supervisory Board). It comprises representatives of the shareholders and reports to the General Meeting. The Council has a key role in the appointment procedure of members of the Governing Board and determines the employment conditions of the Board members.

Sveriges Riksbank (The Swedish Central Bank)

Sveriges Riksbank (“Riksbank”), which is an agency under Parliament, is managed by the Executive Board and the General Council (Supervisory Board).

The Executive Board

The Executive Board, which consists of six members appointed by the General Council, manages the Riksbank. At meetings of the Executive Board, the Chairman and Deputy Chairman of the General Council may attend but are not entitled to make proposals or to vote. Because Sweden is not a member state of the euro area, the Governor takes no part in the decision making of the ECB Governing Council.

The Executive Board decides on, among other things, monetary and foreign exchange policy measures, guidelines for the management of the foreign reserves, inflation and financial stability reports, the operational plan and budget, and the annual report. The minutes of meetings where monetary policy matters are discussed are usually published within two weeks after the meeting.

The General Council

The General Council consists of 11 members appointed by Parliament reflecting the strength of the main political parties at the most recent general election. Its main function is to appoint (and, if necessary, dismiss) the members of the Executive Board and to determine their salaries and other employment benefits.

The other tasks of the General Council include adoption of the working order of the Bank, proposals to Parliament and to the Office of the Parliamentary Auditors on the allocation of the Riksbank’s profits, the design of banknotes and coins, and the management of the operations of the Audit Unit reporting to it. Moreover, the General Council has a regulatory function by, for example, monitoring operations in the Riksbank and requesting that members of the Executive Board present reports at meetings of the General Council. The General Council usually meets once a month except in July and August. Members of the Executive Board are generally present at meetings, except during deliberations and decisions affecting the Board members personally.


With the power to appoint (and dismiss) the members of the Executive Board together with its regulatory function, the General Council has an important role as a body supervising the activities of the Executive Board on behalf of Parliament as the “owner” of the Riksbank (Supervisory Board).

The Swiss National Bank

The Swiss National Bank is a joint-stock company with a Governing Board and the following supervisory and controlling bodies: the General Meeting of Shareholders, the Bank Council, the Bank Committee, the Local Committees, and the Auditing Committee.

The Governing Board

The Bank’s top managing and executive body is the Governing Board. It makes decisions on routine monetary policy matters after consultation with the Federal Government. Its three members, who are at the same time the heads of the three departments, are elected by the Federal Government on the recommendation of the Bank Council.

The General Meeting

The tasks of the General Meeting are specified in the company law, but, owing to the Bank’s public mandate, the powers of the General Meeting are not as extensive as those of ordinary Swiss joint-stock companies.

The Bank Council

The Bank Council’s main function is the general supervision of the progress and conduct of business. Its quarterly meetings provide the Governing Board with an opportunity to explain and justify its policy in detail and engage in a valuable exchange of views. The Bank Council consists of 40 members representing various sectors of the economy and the different regions. Fifteen of these 40 members are elected by the General Meeting and 25, including the President and Vice-President, by the Federal Government.

The Bank Committee

The Bank Committee is responsible, as a body delegated by the Bank Council, for the close supervision and control of the Bank’s management. It discusses in advance all matters to be dealt with by the Bank Council. It is also entitled to participate in the fixing of the official discount and Lombard rates. The Bank Committee consists of the President and Vice-President of the Bank Council and eight members of the Bank Council appointed by it. As a rule, it meets once a month.

The Auditing Committee

The Auditing Committee inspects the annual accounts and balance sheet. It is elected at the General Meeting and consists of three members and three alternates.

The Local Committees

The Local Committees are assigned to the Bank’s head offices and branches and consist of three representatives of the local business community elected by the Bank Council. They discuss the regional economic situation with the Bank’s management and give advice on credit assessments.


The Bank Council is the main supervisory body, but considering its size of 40 members, the most important body is presumably the Bank Committee, whose powers have been delegated to it by the Bank Council and which meets more frequently. The Bank Council and the Bank Committee (Supervisory Boards) are both representatives of the shareholders reporting to the General Meeting of Shareholders.

Switzerland is not a member state of the European Union and the euro area. Its central bank is not, at present, independent from the government according to international standards. It has, however, several supervisory and controlling bodies consisting of representatives of its owners.

Merits of a Supervisory Board

From the above examples of Supervisory Boards in some European central banks, one conclusion that may be drawn is that the concept is not identically designed in all countries. In fact, it varies quite a lot from country to country. There is no one size fits all. It is not necessary. A Supervisory Board may be customized to the requirements of each country’s traditions and legal structure.

What it adds, however, in all of those countries is a platform for an open and regular dialogue between the management of the central bank (Bank Board) and representatives of its owners (Supervisory Board).

One of the major tasks of a central bank, which is rarely, if ever, explicitly mentioned in its laws or statutes but which lies behind many of the international standards and practices for central bank legislation on independent central banks, is to inform its owners and the general public of certain fundamental matters, including the following:

  • What its functions are;

  • Why price and financial stability are important to economic growth and beneficial to all groups of a society, in particular the poor and those with fixed salaries or pensions;

  • Why the central bank should operate independently from political authorities;

  • How it operates to ensure price stability, financial stability, and an efficient and safe payment system;

  • What purposes are served by its domestic and foreign assets;

  • Why its operations are not conducted to maximize profit;

  • Why high central bank profits are not necessarily a good thing (it might be a sign of poorly conducted monetary policy detrimental to the external value of the currency); and

  • What happens with its profits, if any.

It should further make clear that it operates in accordance with the powers delegated and entrusted to it by the legislature. If the legislature decides it should fulfill goals other than price and financial stability, it will do so, but only after due amendment of its law.

These are some of the issues that must be explained by the central bank to reduce the perception of an independent central bank as “a state within the state.” As mentioned earlier, the credibility and legitimacy of the central bank are fundamental to the bank’s ability to function properly, and increased credibility and legitimacy require the central bank to explain and justify itself and the monetary policy conducted.

It is important to remember that the power to make monetary policy decisions independently is delegated to an independent central bank by the legislature and that the delegation can be withdrawn by legislation at any time. Only if its functions and deliberations are properly understood and accepted can the central bank be trusted by the legislature to independently be responsible for monetary policy issues. It is therefore vital for the central bank to explain its activities and to gain the necessary political and public support of its handling of its mandate to maintain price and financial stability. Open and direct communication with the legislature is therefore essential for the management of the central bank. Supervisory Board meetings, where such issues can be explained and justified, may be an additional tool to that end.

From the perspective of the “owners” of the central bank, a Supervisory Board may offer a useful opportunity to monitor the management of the central bank, in particular as a possible means to observe the performance of individual Bank Board members. If not by closely monitoring, how could the owners better keep informed of the activities of individual Bank Board members? This is particularly important where the Bank Board members can be reelected and have staggered terms of office. In such cases, the members are individually assessed at regular intervals. The criteria for dismissal of Bank Board members during their term of office are, as explained above, restricted. Poor monetary policy performance is not one of them (with the exception of the New Zealand central bank). Considering the minimum term of office—at least five years—combined with the wide mandate and the independent nature of the central bank, the appointment and, if applicable, the reappointment of the Governor and his colleagues is one of the most important tasks of the owners, who need to monitor how the central bank functions and become informed of the capabilities of each member. One method currently used to obtain the necessary information is to have one or two representatives make presentations at Bank Board meetings. This method is acceptable according to international standards and practices provided representatives are not members of the board but attend the meetings only as (nonvoting) observers. Another, or additional, manner by which such a monitoring structure may be further strengthened is by establishing a Supervisory Board, the members of which are representatives of the owners.

Impediments to a Supervisory Board

The establishment of a Supervisory Board at the central bank should not necessarily be considered the best manner by which the owners can, through their representatives, monitor and assess the activities of the Governor and his colleagues. The Supervisory Board option might, however, be worth analyzing while considering the management structure of an independent central bank. Existing Supervisory Boards may not look the same in all countries but, in order to comply with international standards and practices for independent central banks, certain requirements must be met under the Supervisory Board option.

The most important requirement is that the Supervisory Board must understand its role properly. It must refrain from influencing the monetary policy of the central bank. This restriction should not prevent open discussions on monetary policy issues with the Governor and other members of the Bank Board, but the integrity of the central bank and its Board members must be respected. If that requirement cannot be expected to be fully observed, there is no room for a Supervisory Board.

Another impediment to a Supervisory Board concerns confidentiality. The purpose of a Supervisory Board as an effective means for a useful dialogue between the management of the central bank and its owners can be attained only if confidentiality issues have first been addressed. A confidentiality policy is essential. The level of confidentiality applied by the central bank and the degree to which the members of the Supervisory Board can be expected to observe such confidentiality restrictions might be found to be incompatible with the purposes of a Supervisory Board.

The scope of necessary confidentiality should be assessed and, perhaps, reevaluated. Routine confidentiality is detrimental to transparency and accountability and should be abandoned. A level of confidentiality that is too high may constitute an impediment not only to an open and transparent dialogue and discussion between the Bank Board and the Supervisory Board but also to accountability and transparency of the central bank in its relations with the political establishment, the media, academia, financial institutions, and the general public.

More specifically to the Supervisory Board, confidentiality might be a problem if its members cannot be expected to fully observe confidentiality restrictions that are to some degree necessary. If such restrictions are not fully observed, considerable damage could be inflicted on the central bank. It might be financially damaged, and its reputation could also suffer, which might be even more damaging and difficult to repair. This may in turn seriously reduce its credibility and its ability to conduct monetary policy efficiently.

Concluding Remarks

Considering the above, the purpose of a Supervisory Board would seem to be most efficiently served under the following conditions:

  • If the Supervisory Board members are committed to respecting the prohibition against issuing instructions to the Bank Board while conducting its monitoring tasks;

  • If the number of Supervisory Board members, on the one hand, sufficiently reflects the interests of the owners of the central bank and, on the other, facilitates open and transparent discussions with the Bank Board members, even on issues covered by confidentiality restrictions;

  • If the Supervisory Board is permitted to appoint, or recommend for appointment, the Governor and the other Bank Board members at staggered intervals;

  • If one or two of the Supervisory Board’s members are allowed to be present at Bank Board meetings and report back to the rest of the members; and

  • If the confidentiality policy is restricted to an absolute minimum.

There is no organizational structure for independent central banks that is “one size fits all.”

The structure chosen needs to take into account the traditions and the legal and political environment in each country. But while contemplating such a structure, it might be useful to look into how central banks have been structured in some other countries. The concept of Supervisory Boards that exists in some European central banks may offer a means by which increased accountability and strengthened transparency may be achieved to properly counterbalance the independence of an autonomous central bank.

The examples of Supervisory Boards described above are not mentioned here as recommendations but to briefly indicate where further inspiration may be found when establishing a structure that is best compatible with national traditions and needs. To fully understand the functions of a specific Supervisory Board, analysis of other statutory and nonstatutory legal sources is necessary. The central bank law or statutes alone cannot always be expected to give a sufficiently comprehensive account of the role of the Supervisory Board.

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