Staff Working Paper No. 1,069
By Jamie Long and Paul Fisher
Central banks retain a portion of their net profits as reserves and distribute the remainder to their finance ministry, typically in the form of a dividend. Few central banks have a reciprocal arrangement in place for covering financial losses with a transfer of capital. This paper reports the findings of a survey of central bank profit distribution and recapitalisation arrangements across 70 jurisdictions and examines the range of features present, such as revaluation accounts and requirements for capital injections. The findings help establish the importance of a robust framework for managing central bank profit distribution and recapitalisation. The presence of such a framework should allow central banks to retain more of profits and access external resources when capital is low, and to function as an income generating asset for the government when capital is high, therefore ensuring both an appropriate use of public funds and the presence of a credible and financially independent central bank that stands ready to act when needed.
Central bank profit distribution and recapitalisation