Governance in central banks: a comparative study of the governance practices used by the central banks of Brazil, Canada and England

Abstract

Corporate governance in central banks has evolved in recent years, both as a result of advances made in the study of the subject by supranational organizations, as well as through the adoption of the best practices used in the public and private sectors. This paper aims to identify, analyze and compare key aspects of corporate governance used by the central banks of Brazil, Canada and England in 2015. By reviewing existing literature on the subject, it was possible to analyze certain aspects of the monetary authorities of these three countries in terms of their structures and their committeees, as well as the three pillars of governance normally attributed to central banks: independence, accountability and transparency. The results showed significant differences between the three, and suggested that the degree of maturity of each country's society has a certain influence on the practices of governance adopted by its central bank.

Keywords:
governance in central banks; committeees; independence; accountability; transparency

Resumo

A governança corporativa em bancos centrais tem evoluído nos últimos anos, tanto em decorrência dos avanços obtidos no estudo do tema por organizações supranacionais como pela adoção das melhores práticas oriundas dos setores público e privado. Este trabalho visa identificar, analisar e comparar os aspectos principais da governança nos bancos centrais do Brasil, Canadá e Inglaterra em 2015. Por intermédio de uma pesquisa bibliográfica foi possível analisar aspectos das autoridades monetárias dos três países em relação à sua estrutura e a seus comitês, e também aos três pilares da governança em bancos centrais: independência, accountability e transparência. Os resultados mostraram que existem diferenças significativas e que o grau de maturidade das sociedades dos países influencia as práticas de governança adotadas pelos bancos centrais.

Palavras-chave:
governança em bancos centrais; comitês; independência; accountability; transparência

Resumen

La gobernanza corporativa en los bancos centrales ha evolucionado en los últimos años, tanto como resultado de los avances en el estudio del tema por organizaciones supranacionales como la adopción de las mejores prácticas derivadas de los sectores públicos y privados. Este estudio busca identificar, analizar y comparar los principales aspectos de gobernanza en los bancos centrales de Brasil, Canadá e Inglaterra en 2015. A través de una búsqueda en la literatura fue posible analizar los aspectos de los tres bancos en lo que respecta a su estructura y sus comités, y también los tres pilares de gobernanza en los bancos centrales: independencia, responsabilidad y transparencia. Los resultados mostraron que existen diferencias significativas, y el grado de madurez de la sociedad influye en las prácticas de gobernanza adoptadas por los bancos centrales.

Palabras clave:
gobernanza en bancos centrales; comités; independencia; responsabilidad; transparencia

1. Introduction

The subject of corporate governance is relatively new in central banks - the majority of them have begun to consider and implement its practices over the last 10 years. Several authors (Siklos, 2002; Crowe and Meade, 2007; Dumiter, 2014; Mihailovici, 2015) and supragovernmental institutions (BIS, 2009, 2010; IMF, 2004) have been performing and publicizing a number of studies on the subject, thus helping central banks in their evolution towards the adoption and diffusion of the best governance practices.

As a basis for this study, in a preliminary stage, the governance practices of 12 central banks were analyzed, namely: Germany, Australia, Brazil, Canada, Chile, the United States of America, India, England, Italy, Japan, Mexico, and New Zealand, as well as the European Central Bank. It must be highlighted that each of the countries in the list has its own institutional, economic, social and cultural characteristics, which differentiates their governance models.

The analysis of these governance practices led to the selection of the central banks of Canada and England, who stood out after the 2008 financial crisis in the elements of structure and committees, accountability and transparency. Thus, for the analysis proposed in this study, the governance practices of these countries' central banks are compared with those adopted by the Banco Central do Brasil (BCB).

A good corporate governance requires legal, regulatory and institutional basis that is appropriate and efficient (BIS, 2010). Clear governance rules, as well as the necessity of accountability² in its actions, allows management to be carried out focusing the priorities defined by the organization, and decision-makers to have their actions assured by a formally established institutional structure, among other benefits.

Therefore, the question that guided this paper was: What are the differences in corporate gorvenance practices between the central banks of Brazil, Canada, and England? The aim of this study is to identify, analyze, and compare the main aspects of corporate governance in the central banks of these three countries during the year of 2015, and it is justified by the ongoing necessity of improving such practices in the limited universe of monetary authorities.

2. Corporate governance in central banks

Central banks can generally fall into three models: company, supervised, or in-house (Mendzela, 2009). The main characteristics of each model are shown in chart 1.

chart 1
Classification of central banks

• Source: Mendzela (2009).

According to this classification, the Bank of Canada (BOC) and the Bank of England (BOE) fall into the supervised model. The in-house model, adopted by BCB, presents as its main problem the non-differentiation between governance and management.

Governance is associated with the setting of rules for the decision-making process; it defines who makes decisions, who is responsible for them, and how decisions have to be made. In essence, it defines roles and responsibilities. Management has to do with the execution of rules set by governance, and the operational routine of the organization.

According to BIS (2009), the decisions made by central banks fall broadly into three categories, as it is detailed in chart 2

Chart 2
Categories and types of decisions made in central banks

• Source: BIS (2009).

In central banks that adopt the in-house model, members of the single board make decisions concerning both policies and management.

Amtenbrink (2004) suggests that governance in a central bank is defined by three pillars (which together form the basis for the legal framework that regulates the central bank): independence, accountability, and transparency. These are integral parts that enable a central bank to obtain its social insertion and credibility over the course of time. These three pillars, together with the analysis of the structure and the decision-making process in committees, guided this comparative study of governance practices in the central banks of Brazil, Canada, and England.

2.1 The first pillar: independence

Literature usually uses the terms "autonomy" and "independence" interchangeably. However, it should be noted that there is a difference between the two concepts. Autonomy entails operational and financial freedom, while independence goes ahead, also indicating the inexistence of institutional restrictions (Lybek, 2004). In this paper, the word "independence" refers to the central bank being independent or having autonomy in its operation. In the latter case, the bank would be endowed with administrative, budgetary and operational autonomy within the limits set forth by law.

In developed countries, the idea of an independent central bank is not new; what they seek is to create an instutional and political environment in which central banks can operate successfully. According to Dumiter (2014:39), "in the last decades, specialists have accomplished the best form for a successful central bank: independence from political pressure, accountability to society, transparency beyond its actions, and an efficient method of communicating with the financial market and the public in general".

A number of authors have already studied the relationship between the central bank independence and both macroeconomic performance and inflation rate (Eijffinger and De Haan, 1996; Arnone, Laurens and Segalotto, 2006; Crowe and Meade, 2008). Some works advocate the central bank independence (Forder, 2005), while others argue against it (Freitas, 2006).

The basic argument against independence is based on the idea that there might be a lack of democratic legitimacy if the central bank were separated from the political power, and the possibility of disagreement between governmental policies and those established by the central bank. For those who defend the independence, this is a flawed argument.

In Brazil, central bank independence is still a controversial subject among politicians and society. It has already been almost 30 years since the Brazilian Federal Constitution of 1988 was promulgated, and its article 192, which deals with the financial system, has not been regulated yet. Not long ago, Brazil consumed 51 years of discussion in the Congress to create its central bank - from 1913, when the Federal Reserve was created in the United States of America, to December 1964.

There is no independence or autonomy which is not predicted by law. It has to be de facto and de jure. Mexico can be taken as an example - has economic and social characteristics similar to Brazil's - and whose article 28 of its Constitution clearly states the Bank of Mexico's independence.

The international experiences in most developed countries and in more mature democracies show that the independence of central banks should be formalized in the country's Constitution (preferably), or in supplementary law that regulates the monetary authority's role. Governance tools such as the Memoranda of Understanding (MoU), used by the Bank of England (2015), can be created in order to facilitate the interaction between central banks and their governments, even in moments of crisis.

2.2 The second pillar: accountatility

Accountability entails the obligation of accounting for actions, which consists of supplying full information and explaining someone's actions; as well as addressing the issues related to those actions. Accountability means a powerful tool in the establishment of political order in a democratic way (Eijffinger and Hoeberichts, 2002; Ullrich, 2007). Given that actions and activities promoted by central banks affect the economic, social and political society as a whole, they should be subjected to the scrutiny of citizens and their elected representatives, especially the Parliament, which is the most democratic institution in a modern country.

In order to be 'accountable' to a principal, an agent must have been assigned a task by this principal; also, he or she has to inform their principal how and to what degree this task is being executed, as well as to be susceptible to penalty in case such task is not performed according to what was assigned by their principal (Kaltenthaler, Anderson and Miller, 2010). The main questions in the design of accountability arrangements are (ECB, 2002): who is accountable in the central bank?; for whom shall the central bank account its actions?; what is the central bank considered liable for?; and how is liability/accountability performed?

The international experience shows that task delegation o a central bank should be accompanied by accountability so as to assure appropriate democratic control and good governance. No society has granted independence to its central bank without the counterpart of accountability rules.

The legal basis for accountability in central banks usually tends to be specified in the countries' constitutions and in the central banks' statutes. In general, central banks have to account for their actions to the Legislative or Executive Branches of the government, depending on the constitutional delegations of responsibility.

There are several formal mechanisms through which central banks are liable for their activities: monitoring by the government or the legislature; regular publication of reports; repercussion when the central bank's actions or their results are considered lame. Accountability practices legitimate central bank independence, supplying public support for its autonomy and strengthening its credibility.

2.3 The third pillar: transparency

Nearly all studies of transparency in central banks focus on the issue of monetary policy (Geraats, 2002). Only recently, after the 2008 global financial crisis, financial stability started to be studied. Some authors suggest total transparency regarding information concerning the monetary policy (Tomljanovich, 2007), while others support that transparency cannot be total (Van Der Cruijsen, Eijffinger and Hoogduin, 2010).

Neuenkirch (2012) states that empiric literature, in its greatest part, finds beneficial effects in transparency. He also reports that authors who have reviewed such literature concluded that transparency: (1) enhances agreement between analysts; (2) reduces inflation and anchors inflation expectations; (3) enhances the central banks' credibility, reputation and flexibility; (4) does not have an obvious influence on the product and variability of output; and (5) enhances the anticipation of policies.

According to Diamondopoulos (2012:247), in a world of uncertainties, transparency and communication become more important for central banks and regulators. There is more transparency in countries whose political systems are stabler and more developed, and whose financial markets are more perfected (Dincer and Eichengreen, 2007).

Given that central banks have become more independent, the demand for transparency has increased, both because of accountability and legitimacy, and in order to guide the financial market participants' expectations, whose appetite for information has expanded inasmuch as financial markets have become wider and more complex (Crowe and Meade, 2008:764).

2.4 Committees in central banks

The use of committees is a common practice in central banks, and several authors have already approached the subject in a number of publications (Schiffman, 2004; Berger, Nitsch and Lybek, 2006; Sibert, 2006; Crowe and Meade, 2007).

The presence of committees in decision-making processes in central banks is usual and it shows advantages, such as the possibility of bringing together their members' views and information when issues are analyzed and discussed in committees. But decision in committees also displays problems. In a study conducted by Sibert (2006), which offers an analysis of psychological and economic points of view derived from the well-known Condorcet's jury theorem, one can better understand, based on international experiences, how committees work.

A typical board uses committees to improve its effectiveness and ensure its focus on issues of private interest (Tonello, 2010:212). Structuring committees allows a better allocation of skills and responsibilities among subgroups of directors, and meets the increasing necessity of dedicating more time and deeply analyzing key business areas (Klein, 1998; Spira and Bender, 2004).

A committee usually involves a group of members of the organization who are oriented toward the development and execution of specific services, as well as the decision-making process. Thus, the effectiveness of committees is a relevant aspect for central banks. In addition, effective committees do not happen by chance. They are carefully planned and built to have a balanced representation of members, both a mission or goal and a working plan that are clearly defined, a capable chair, and competent staff.

The policy committees of central banks deal with sensitive and worthy issues. The information analyzed by them and the decisions they make influence financial markets in their countries and, in some cases, even global markets. Therefore, a good practice is to adopt the blackout period or purdah, which consists of a period of self-imposed silence to committee members during a fixed period before the policy decision. This practice aims to mitigate potential speculations in the market (Vayid, 2013:5).

3. Central banks in the public administration context

Governance studies usually use elements of the agency theory in order to explain the relationship and the potential conflicts that exist between principals and agents (Fama and Jensen, 1983). In private companies, the relationship between owners or shareholders (principals) and executives (agents) is clear. In the public sector, however, this relationship is not so clear, but it exists between the people or society (principal) and public managers (agents). The application of the agency model to the central bank was well explained in the work by Koch (2007).

The public governance theme, also called governance in the public sector, was the object of studies in Brazil (Kissler and Heidemann, 2006; Secchi, 2009; Oliveira and Pisa, 2015) and abroad (Benz and Frey, 2007). In most countries, central banks are public institutions, the central bank of Switzerland being an exception.³

The institutional situation of the central bank in the public sector varies from country to country, depending on historical, social and cultural factors. In more developed countries, the independence of the central bank is common; but even in some developing countries, such as Mexico, Peru and Chile, the central bank is also formally independent.

According to Dumiter (2014), the logics behind the central bank independence is sometimes misunderstood, and thus political authorities fail to understand its importance and significance, especially in developing and emerging countries.

The governance structure in central banks has two aspects: corporate governance, and public governance (Oritani, 2010). In the former, governance elements such as committees, accountability, and transparency, are taken into account. In the latter, the relationship of the central bank (agent) with society (principal) and the representative elected by the principal, either the Executive Branch's head or the Legistalive Branch, has to be established. It is a more complex relationship, which needs clear accountability rules.

4. Method

As to its nature, this applied research is classified as qualitative, exploratory and bibliographic, oriented toward the solution of a specific problem (governance practices in central banks). The process and its significance are the main focal points of its qualitative approach, as it seeks to interpret the phenomena without using statistic methods and techniques. Since the subject is comparatively new and in a preliminary stage, the study aims to offer more information about the subject in order to enable better definitions and frameworks. Finally, the study is primarily based on secondary data, such as cientific papers, books, and other documents available on the central banks' Internet websites.

Koche (1997:122) states that bibliographic research can be done for different purposes, namely: (i) enlarging the knowledge extent in a certain field, enabling the investigator to better understand or delimit a research problem; and (ii) describing or systematizing the state of the art at that moment, regarding certain subject or problem.

Research was carried out in four stages: planning, bibliographic research, data analysis, and preparation of the final report. In the planning stage, the research subject and its scope were defined, as well as the necessary stages for its execution. During the bibliographic research stage, besides academic papers and books, data in documents made available on the Internet websites of the banks of Germany, Australia, Brazil, Canada, Chile, the United States, India, England, Italy, Japan, Mexico, and New Zealand, as well as on that of a supranacional bank, the European Central Bank, were gathered and verified. This set of banks was a convenience sample taken by the researchers. Information related to the structure of central banks, their decision-making processes and committees, accountability and transparency in their decisions and actions is among the selected data.

In the data analysis stage (comparative study), the set of central banks was reduced to three. The countries and criteria used were: Brazil, as it is the researchers' native country; Canada and England, since they had the most complete and up-to-date governance data among the countries that were analyzed. The comparison between the governance practices of the central banks of these three countries was developed and organized in two large blocks. The first one, called "structure and committees", aims to show the differences existing in organization forms and decision making processes. In the second one, called "the three governance pillars in central banks", the characteristics of independence, accountability and transparency of the three banks are compared.

5. Corporate governance and the Committees of BOE, BOC and BCB

BOE and BOC are international references in accountability and transparency practices. Their governance designs have been modified after the 2008 crisis, when both initially adopted the model known as two wings for the central bank. In this model, the structure basically comes down to the monetary policy and financial stability areas, supported by an area of corporate services. Several aspects of these two central banks' committees were studied, such as their creation, operation and contribution.

BOE, however, has recently created a third great area, called Markets & Banking, which was separated from the financial stability area, where it belonged previously. This new area is in charge of reforming the Bank's operations - including the guarantee of robust risk management practices - as well as revising and reinforcing markets. This also shows the importance of both system and payment arrangements in its structure.

The two banks differ when it comes to placing the bank oversight area inside or outside the central bank. In England, the Prudential Regulation Authority (PRA), in charge of the microprudential regulation, was included in the central bank, despite being autonomous (Bank of England, 2013); while in Canada, the Office of the Superintendent of Financial Institutions (Osfi), which has a similar function, is an independent institution.

5.1 Bank of England

In BOE (2015), the Court of Directors is responsible for managing all the central bank's businesses, except the formulation of the monetary policy. It functions as a unitary council of directors, composed of executive and non-executive members, and it is chaired by an independent, non-executive member of the Bank. This is an important differential and it reveals the English society's level of evolution and maturity in relation to corporate governance practices.

In BOE's organogram, displayed in figure 1, one can note the structure is composed of the governor, the four deputy governors, and the chief operations officer (COO), who does not take part in the policy committees, in spite of having the same status and remuneration of the deputy governors.

Monetary policy, markets and banking, financial stability, and prudential regulation authority (in charge of the microprudential regulation) are the four major areas in the Bank, and all of them are backed by the support areas under the COO. There are 14 departments operating in all of those areas.

In BOE, the chief operations officer is responsible for each and every aspect associated with the daily management of the Bank, including human resources, finance, material resources, safety and IT. The COO's profile is that of a manager, not a policy formulator. This aspect is extremely relevant and has been adopted by other central banks, which have seen advantages in this model with a specialized position. In the model, functions are not mixed up, and the management of support areas is strengthened, because the COO's oversight range is reduced to few areas.

BOE (2015) had 3,868 employees in 2015.

Figure 1
BOE's organizational structure⁴

The committees in BOE's Court of Directors are listed in chart 3.

Chart 3
Committees of the BOE's Court of Directors

• Source: Bank of England (2015).

The other BOE's committees are listed in chart 4.

Chart 4
Other BOE's committees

• Source: Bank of England (2015).

Notwithstanding intitutional differences that shape, limit and differentiate the central banks' functioning in several committees of the Court of Directors, the Oversight Committee, in charge of overseeing the Bank's functioning, calls attention for its nature and mandate. It is an important institutional arrangement when it comes to the commitment to accountability.

Another point to be highlighted is the existence of another committee in the Court of Directors: the Audit and Risk Committee, whose role and importance are translated in the words by Schiffman (2004):

One of the main corporate governance reforms in western countries is the reinforcement of the role of the Council's audit committee, which will be chaired by an independent counselor. The goal of this committee is to ensure the integrity of both financial statements and its audit and internal control systems.

5.2 Bank of Canada

In BOC (2015), the Board of Directors provides general oversight of the Bank's management and administration concerning strategic planning, financial and accounting issues, risk management, human resources, and other internal policies.

The Board is composed of the governor, the deputy governors, and 12 independent directors appointed for renewable three-year mandates by the governor in Counsel (of ministers). The Finance vice-minister is an ex officio, nonvoting member of the Counsel.

According to figure 2, the Bank is organized in 14 departments distributed throughout the areas of monetary policy, financial system, operations, and four other areas directly associated with the Board.

BOC (2015) had 1,528 employees in 2015.

Figure 2
BOC's organizational structure⁵

The Committees of BOC's Board are listed in chart 5.

Chart 5
Committees of BOC's Board

• (*) This Committee is defined and established in the Bank of Canada Act. Source: Bank of Canada (2015).

The other BOC's committees are listed in chart 6.

Chart 6
Other BOC's committees

• Source: Bank of Canada (2015).

Among the Board's committees, it is worth highlighting the Corporate Governance Committee, composed of at least three independent directors. Two other committees that are important for the organization because of their strategic role in the achievement of organizational policies are the Management Council and the Chief's Committee. One should notice the senior deputy governor's presence and importance in the Bank's governance structure. This executive serves as vice-president and helps the governor with institutional and policy governance issues.

The lead director is one of the 12 independent directors and is an extremely important personage in the Bank's governance structure. He or she is responsible for providing leadership to improve the Board's efficiency, guiding the Board's annual self-assessment process, supporting the governor in the corporate governance practices and management of the Bank, according to what is established by the Corporate Governance Committee in relation to that mandate. The lead director is also responsible for functioning as a link between the Board and the Management in governance issues.

BOC regularly divulges the composition of its Board's committees, even mentioning the number of participations by committee members. The terms of reference of the BOC's committees are available in the Bank's Internet website.

5.3 Banco Central do Brasil

In BCB (2015), the Board of Governors is composed of the governor and 8 deputy governors, as it can be seen in figure 3. Its structure comprises 36 departments plus 9 regional administrative management units.

BCB (2015) had 4,187 officers in 2015.

Figure 3
BCB's organizational structure⁶

In BCB, the Monetary Policy Committee (Copom) and the Financial Stability Committee (Comef) are composed of the same group that constitutes the Bank's Board of Governors, that is, the governor and the eight deputy governors. This is one of the differences between the central banks of the three countries studied in this paper.

Unlike its congeners, the BCB's organizational chart does not allow for an immediate observation of the main operational areas as a central bank (monetary policy, financial stability, markets and banking).

Another aspect that differentiates BCB from the other two central banks under analysis is the existence of areas that are not usually present in the functioning scope of classic central banks, such as regulation and control of rural credit operations. Also, the existence of a bureau called Institutional Relationship and Citizenship should be highlighted, for it has no parallel in the central banks that were studied.

In BCB, the bank oversight, performed by the Supervision (Difis), is placed inside the central bank, which is similar to the model adopted by England - that has recently introduced the Prudential Regulation Authority (PRA) in its structure - and very different from the Canadian situation, in which oversight is performed by another agency - The Office of the Superintendent of Financial Institutions (Osfi).

The committees of BCB's Board are listed in chart 7.

Chart 7
Committees of BCB's Board

• Source: Banco Central do Brasil (2015).

The other BCB's committees are listed in chart 8.

Chart 8
Other BCB's committees

• Source: Banco Central do Brasil (2015).

6. Comparative analysis of governance practices

This section presents the data analysis that aims to answer the question proposed in this research: What are the differences in corporate governance practices between the central banks of Brazil, Canada and England?

6.1 Structure and committees

An initial analysis of the three banks' organograms shows that BCB has additional functions when compared to its two congeners. It becomes also evident that it has a bigger structure when it comes to the number of departments. Another aspect is that BOC's and BOE's organograms allow for an easier identification of the main functions performed by those two central banks.

Figure 4 presents three Venn diagrams with the different compositions of the BCB's, BOC's and BOE's policy boards in December 2015.

The figure shows the different models adopted by the three countries. As far as the composition of the central banks' policy boards goes, significative differences between the models adopted in both Canada and England and the Brazilian model can be highlighted, such as composition, and formally established mandates for its members, as indicated in chart 9.

Figure 4
Policy boards in BCB, BOC, and BOE

Chart 9
Policy Committees' composition and their members'mandate in the three countries (situation in 2015)

• Source: BCB (2015), Bank of Canada (2015), Bank of England (2015).

According to BIS (2009), including external members to the board's group can attenuate the adversities of groupthink,⁷ and its greatest contribution is the aggregation of a variety of experiences and knowledge into the group (Sibert, 2006). Still, according to BIS (2009), one of the most important contributions of a multi-board governance structure is to offer a system of checks and balances that involves internal accountability.

The matter of the ideal size of boards and committees has been analyzed in several studies, such as those by Sibert (2006) and Crowe and Meade (2007). According to Berger, Nitsch and Lybek (2006), from IMF, and also BIS (2009), the average size of central banks' boards varies from seven to nine members.

The "blackout period" (Vayid, 2013) for policy boards' members is formally established in BOC and BOE. In BCB, Copom's regulation for meetings does not set forth a silence period immediately before its members' meetings. This governance practice prevents the exposure of these committes' members.

In BOE, the presence of external participants in policy committees is allowed, which aggregates knowledge and experience into the central banks. BCB and BOC do not adopt this possibility.

Among the many committees that were analyzed in the central banks of the three countries, some deserve to be highlighted for their significance at this evolutionary moment in the subject of governance. The first are BOE's Audit and Risk Committee and Oversight Committee. The second are BOC's Management Committee and Corporate Governance Committee. The third are BCB's Committee of Corporate Projects and People Management Committee.

6.2 The three pillars of governance in central banks

The three central banks under analysis perform their functions in different institutional environments, in societies with different degrees of maturity concerning social, political and economic points of view.

6.2.1 Independence

The pillar of independence reveals some differences between the three central banks. BCB has neither independence nor autonomy set forth by law. The Central Bank's governor and deputy governors are appointed by the President of the Republic and these appointments have to be approved by the Federal Senate. The lack of independence does not prevent the other two pillars of governance - accountability and transparency - but surely embrittles them (Amtenbrink, 2004).

In BOC, the governor e deputy governors are appointed for seven-year mandates by the Bank's Board of Directors, and they can be reconducted. Despite having definite mandates, they can be dismissed by the government, which is a point of similarity with the Brazilian case.

Canada, however, has a legal instrument that sets forth that, in case of serious disagreement between the government and BOC, the Finance Ministry can issue written instructions so that the Bank changes its policies. Such a document has never been used so far. Probably, it has never been used because the government has a representative (the Finance vice-minister, a non-voting member) in the Board. Besides, the 12 independent directors, who are representatives of the Canadian provinces appointed by the Finance Ministry with the governor's approval, have three-year, renewable mandates.

It is relevant to highlight that Canada adopts the parliamentary system, where the Congress has a predominant role in the conduction of the country, unlike Brazil, which adopts the presidential system, where the president greatly concentrates powers, including that of appointing and dismissing the BCB's governor and deputy governors.

Another fundamental aspect is that, although BOC does not have its independence set forth in law, it has legally constituted autonomy, which does not occur in the Brazilian case. In order to perform its actions, BCB relies on budgetary resources that are controlled and released by the government. It is a monetary authority that is limited by third parties in its actions and projects, which is not usual in central banks' practices.

The Bank of Canada Act includes in its text an interesting governance-related provision that is called 'disqualifications' and applies to the governor, deputy governors and directors of the Board. The text provides a detailed list of what disqualifies a citizen from occupying those positions.

In BOE, the top chiefs are all appointed by the Crown. The governor is appointed to an eight-year mandate, the deputy governors to five-year mandates, and the directors to three-year mandates. The existence of staggered terms is a good governance practice, which differentiates BOE from both BCB and BOC.

Another governance practice that differentiates BOE from its two congeners is the use of the mechanism of Memoranda of Understanding (Bank of England, 2015) to formalize its relations with both the Treasury and the English government, even for dealing with exceptionalities.

External members' participation in directive committees is another governance practice adopted by that Bank, as it happens in its highest decision-making agency, the Court of Directors, whose chair and most members are external to BOE. Indeed, the Court of Directors is composed of four executives of the Bank (the governor and three deputy governors) and nine non-executives of the Bank; one of them being its chair.

BOE, just as BOC, also has formally constituted autonomy. Its relationship with the Treasury is totally set forth in the Financial Services Act, which settles how that relationship works, as well as all the other Bank's relationships.

6.2.2 Accountability

Among the three banks under analysis, BOE should be highlighted for its accountability practices, since they are always set forth in legal instruments, both internal and external to the Bank. The access to its documents is easy and they are well organized in the Bank's Internet website.

As is the practice with all central banks, the three central banks under analysis offer information regarding monetary policy and financial stability that are either legally defined or not. Thus, inflation reports, minutes from policy committees, among other documents, are regularly made available by the banks to the great public.

There seems to be a strong correlation between the central banks' independence or autonomy and their accountability (Ullrich, 2007). The more autonomy society grants to its central bank, the more counterparts society demands in exchange. Accounting for its decisions and actions becomes a duty, which is constantly demanded by many interested agents.

The principal-agent relationship and conflicts contemplated in the agency theory are present in the relationship between a country's society and its central bank. Accountability is an instrument used by the principal (society) to control the agent (the executive of a central bank). It entails the necessity of accounting for one's acts and the liability for performed actions.

As it was stated by Lybek and Morris (2004), "An appropriate governance structure can help entrench central bank autonomy and facilitate accountability by depoliticizing the process". In BCB's case, when compared to its two congeners, information regarding "corporate governance" is not explicitly available on its Internet website.

6.2.3 Transparency

The analysis of information available on the Internet websites of the three central banks studied here shows some important differences between them. For example, both BOC (2015) and BOE (2015) deal with the subject of governance on their Internet websites in a very specific way. They both offer access to governance information under the title About the Bank. Also, they stand out for the richness of details and the possibility of finding the main governance topics concerning central banks, such as decision-making process, composition of committees, documents released by committees in order to fulfill accountability and transparency requirements.

BCB (2015) displays a great deal of information about all of its activities, but it is more difficult to find specific information on the Brazilian central bank's website than on its congeners'. On BOE's or BOC's websites, for example, one can access all of the publications made available by the Bank, regarding all of its areas, all at once (at "Publications"). On BCB's website, publications are scattered throughout their areas of activity.

One of BOC's governance practices that distinguish this Bank from the other two central banks is the disclosure of all of its committees' terms of reference online. These terms specify each and every governance element related to the committees, such as the committee chair's duties, and a definition of the decision-making process.

BOC's and BOE's more advanced transparency stages comparatively to BCB's, seem to confirm the statement by Dincer and Eichengreen (2014), according to whom transparency and independence respond to similar economic and institutional determinants, and their levels tend to be higher in more open economies.

Chart 10 summarizes some of the previously mentioned differences in the three central banks' governance practices.

Chart 10
Comparison of governance practices in the three central banks

• Source: BCB (Banco Central do Brasil); BOC (Bank of Canada); BOE (Bank of England).

7. Concluding remarks

The aim of this study was to identify differences in governance practices existing in 2015 in the central banks of Brazil, Canada and England. These practices have evolved in the last years and central banks have been trying to work continuously and directly with the three basic pillars: independence, accountability and transparency.

The granting of independence to the central bank varies from country to country and depends on the maturity level reached by democracies. Countries that are more mature usually grant independence to their central banks, with the counterpart of greater accountability.

Central banks strongly operate on the accountability pillar, both by disclosing their policy committees' minutes, and in their institutional committees. Defining roles and responsibilities is essential for good governance; creating rules for the composition and operation of committees and assessing their performance is also fundamental for the central bank's credibility.

Transparency is vital in central banks, since economies and their agents certainly appreciate and value prediction abilities when it comes to better directing their investments. Therefore, central banks and their committees must operate widely disclosing their minutes and decisions, and even showing their members' contribuition.

In addition, there is no doubt that the existence of a formal structure to guide the corporate governance matter in central banks is important. A formal instance within such organizations has to be responsible for the adoption and diffusion of the best governance practices. This practice has already been adopted by BOC.

Central banks must keep information about their governance practices updated and easily accessible to interested people on their Internet website. The level of completude and actualization of that information reinforce the pillars of accountability and transparency.

The fact that this analysis was based only in secondary data available on the central banks' Internet websites, which did not allow for observation and confirmation in loco by the researchers, may be pointed out as a limitation to this study.

Finally, we suggest that future studies deepen this analysis, comparing a wider range of central banks, with the possibility of gathering them according to a variety of criteria, such as gross domestic product and human development index, so as to identify similarities and differences in their governance practices in view of social and economic parameters.

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• 1
  The author thanks Fundação Nacional de Desenvolvimento do Ensino Superior Particular (Funadesp) for the research and development scholarship, and also Faculdades Alves Faria for guiding this work.
• 2
  Accountability concerns the explanation of one´s actions and bearing responsibility for them (ECB, 2002:48; Eijffinger and Geraats, 2006:4).
• 3
  The Swiss National Bank has shares negotiated in stock exchange.
• 4
  BOE's original organizational chart showing the situation in 2015.
• 5
  BOC's original organizational chart showing the situation in 2015.
• 6
  BCB's original organizational chart showing the situation in 2015.
• 7
  Groupthink happens when a committee is sufficiently cohesive and its members, looking for consensus, fail to pay proper attention to alternatives (Janis, 1982).

Publication Dates

• Publication in this collection
  Sep-Oct 2016

History

• Received
  02 Dec 2014
• Accepted
  05 July 2016