Marriner S. Eccles and the 1951 Treasury–Federal Reserve Accord: Lessons for Central Bank Independence

The 1951 Treasury–Federal Reserve Accord is an important milestone in central bank history. It led to a lasting separation between monetary policy and the Treasury's debtmanagement powers and established an independent central bank focused on price and macroeconomic stability. This paper revisits the history of the Accord and elaborates on the role played by Marriner Eccles in the events leading up to the Accord. As chairman of the Board of Governors since 1934, Eccles was also instrumental in drafting key banking legislation that enabled the Federal Reserve System to assume a more independent role following the Accord. The global financial crisis has generated renewed interest in the Accord and its lessons for central bank independence. This paper shows that Eccles' support for the Accord—and central bank independence—was clearly linked to the strong inflationary pressures in the US economy at the time, and that he was equally supportive of deficit financing in the 1930s. This broader interpretation of the Accord holds the key to a more balanced view of Eccles's role at the Federal Reserve, where his contributions from the mid-1930s up to the Accord are seen as equally important. Accordingly, the Accord should not be viewed as the final triumph of central bank independence, but rather as an enlightened vision for a more symmetric policy role for central banks, with equal weight given to fighting inflation and preventing depressions.publishedVersio

Market Discipline Issues in Cross-Border Banking. A Nordic Perspective

Cross-border banking is on the rise. Large, cross-border banks have been established in the Nordic, Baltic and Benelux countries. Banco Santander’s takeover of Abbey National made headline news last year, and this year the bid by the Dutch bank ABN Amro for the ninth largest Italian bank Antonveneta has been front-page news for months. And just lately, the Benelux group Fortis was reported to have approached the Franco-Belgian group Dexia with a merger proposal. As cross-border banks increase in size, it is relevant to ask if stakeholders in these megamergers banks are exposed to the true risks involved, or if they expect the financial safety net to bail them out – should a crisis occur. National authorities could also be exposed in case of a failure in a cross-border bank, but the potential liability facing taxpayers has so far been masked by unclear home-host responsibilities for cross-border banks. Crisis resolution in a cross-border bank is obviously the responsibility of the bank’s owners and management, but previous banking crises have shown that authorities must also have contingency arrangements in place. Cross-border banks pose new challenges for policy makers. Goodhart (2005) has noted that “the interaction of an internationally inter-penetrated banking system with national regulations and burden allocation could well turn out to be a dangerously weak institutional feature.” The policy response has been to seek greater clarity in roles and responsibilities. Supervisory convergence and coordinated liquidity provision are being discussed among supervisors and central banks. Clarke (2005) even asks if an international liquidity concordat for large cross-border banks should be considered. But is this drive for convergence and agreement on intervention principles realistic? And is it desirable? What if greater clarity about roles and responsibilities were to weaken market discipline? In the following we review some of the issues involved and discuss their possible impact on market discipline. Most of the home-host discussion has so far been centered on supervisory issues. There has been less attention to the role of central banks, especially in cross-border crisis resolution. We refer to some of the issues that have been discussed among the Nordic central banks. We conclude that international agreements on crisis resolution and burden sharing will be hard to achieve. Private sector solutions should therefore be promoted, while public authorities should take measures that will make their non-intervention policy credible

Innskuddsikring i Norge – i et internasjonalt perspektiv

Innskuddsikringen er en viktig del av bankenes rammebetingelser. Den skal både beskytte forbrukerne og sikre finansiell stabilitet. Utformingen av innskuddsikringen drøftes for tiden i mange land. EU kommisjonen har nylig vurdert behovet for endringer i innskuddsdirektivet. Krisen i den engelske banken Northern Rock illustrerer godt problemene som kan oppstå ved en innskuddsikring som ikke er optimalt utformet. Fremveksten av grensekryssende banker har dessuten økt oppmerksomheten om hvem som har ansvaret for innskuddsikringen. Her gjennomgås først hovedtrekkene i den norske innskuddsikringen, som så sammenlignes med tilsvarende systemer i andre land og med internasjonale anbefalinger om hvordan slike systemer bør utformes. Det norske systemet følger langt på vei internasjonale anbefalinger, men på enkelte områder er det behov for endringer, som å klargjøre sikringsfondets mandat, å vurdere størrelsen på fondet i forhold til de garanterte innskuddene, samt å etablere bedre rutiner for rask utbetaling av garanterte innskudd etter en krise

Market Discipline Issues in Cross-Border Banking. A Nordic Perspective

Cross-border banking is on the rise. Large, cross-border banks have been established in the Nordic, Baltic and Benelux countries. Banco Santander’s takeover of Abbey National made headline news last year, and this year the bid by the Dutch bank ABN Amro for the ninth largest Italian bank Antonveneta has been front-page news for months. And just lately, the Benelux group Fortis was reported to have approached the Franco-Belgian group Dexia with a merger proposal. As cross-border banks increase in size, it is relevant to ask if stakeholders in these megamergers banks are exposed to the true risks involved, or if they expect the financial safety net to bail them out – should a crisis occur. National authorities could also be exposed in case of a failure in a cross-border bank, but the potential liability facing taxpayers has so far been masked by unclear home-host responsibilities for cross-border banks. Crisis resolution in a cross-border bank is obviously the responsibility of the bank’s owners and management, but previous banking crises have shown that authorities must also have contingency arrangements in place. Cross-border banks pose new challenges for policy makers. Goodhart (2005) has noted that “the interaction of an internationally inter-penetrated banking system with national regulations and burden allocation could well turn out to be a dangerously weak institutional feature.” The policy response has been to seek greater clarity in roles and responsibilities. Supervisory convergence and coordinated liquidity provision are being discussed among supervisors and central banks. Clarke (2005) even asks if an international liquidity concordat for large cross-border banks should be considered. But is this drive for convergence and agreement on intervention principles realistic? And is it desirable? What if greater clarity about roles and responsibilities were to weaken market discipline? In the following we review some of the issues involved and discuss their possible impact on market discipline. Most of the home-host discussion has so far been centered on supervisory issues. There has been less attention to the role of central banks, especially in cross-border crisis resolution. We refer to some of the issues that have been discussed among the Nordic central banks. We conclude that international agreements on crisis resolution and burden sharing will be hard to achieve. Private sector solutions should therefore be promoted, while public authorities should take measures that will make their non-intervention policy credible

Management of Financial Crises in Cross-Border Banks

Financial integration in Europe is increasing. The emergence of large, cross-border banks poses new challenges to the authorities. The management of financial crises in such banks will involve a number of authorities in many countries. Conflicts of interest between the authorities in different countries may hinder effective crisis solutions. Crisis management agreements between supervisory authorities and central banks aim to clarify the division of responsibilities and facilitate the exchange of relevant information. The Nordic central bank governors signed an agreement in 2003. This article provides an overview of developments and discusses the challenges facing the authorities

Innskuddsikring i Norge – i et internasjonalt perspektiv

Innskuddsikringen er en viktig del av bankenes rammebetingelser. Den skal både beskytte forbrukerne og sikre finansiell stabilitet. Utformingen av innskuddsikringen drøftes for tiden i mange land. EU kommisjonen har nylig vurdert behovet for endringer i innskuddsdirektivet. Krisen i den engelske banken Northern Rock illustrerer godt problemene som kan oppstå ved en innskuddsikring som ikke er optimalt utformet. Fremveksten av grensekryssende banker har dessuten økt oppmerksomheten om hvem som har ansvaret for innskuddsikringen. Her gjennomgås først hovedtrekkene i den norske innskuddsikringen, som så sammenlignes med tilsvarende systemer i andre land og med internasjonale anbefalinger om hvordan slike systemer bør utformes. Det norske systemet følger langt på vei internasjonale anbefalinger, men på enkelte områder er det behov for endringer, som å klargjøre sikringsfondets mandat, å vurdere størrelsen på fondet i forhold til de garanterte innskuddene, samt å etablere bedre rutiner for rask utbetaling av garanterte innskudd etter en krise

Marriner S. Eccles and the 1951 Treasury – Federal Reserve Accord: Lessons for Central Bank Independence by

necessarily represent the position of Norges Bank

Management of Financial Crises in Cross-Border Banks

Financial integration in Europe is increasing. The emergence of large, cross-border banks poses new challenges to the authorities. The management of financial crises in such banks will involve a number of authorities in many countries. Conflicts of interest between the authorities in different countries may hinder effective crisis solutions. Crisis management agreements between supervisory authorities and central banks aim to clarify the division of responsibilities and facilitate the exchange of relevant information. The Nordic central bank governors signed an agreement in 2003. This article provides an overview of developments and discusses the challenges facing the authorities