Why Study Central Bank Governance?

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Dissertation Concept Paper

Why Study Central Bank Governance?
Background of the study
The global financial crisis, several years ago, has raised an essential question about the role of the central banks (CBs) in promoting banking stability. One of the important lessons of the crisis is that central banks will unavoidably be involved during the occurrence of a banking crisis since the CBs are able to provide large amounts of liquidity in very short notice, to both the banking system as a whole and to individual bank.
Prior to the crisis, a common compromise emerged about the function and position of the CBs. Although the CBs’ primary objective is to maintain price stability, as the need arises, a CB is seen to play roles that may be inconsistent with its core goal. However, these actions of the CBs may be necessary for banking stability in the country. These may include bailing out the insolvent banks, managing the government’s financial transactions, financing budget deficits through the issuance of money, and financing the development projects undertaken by the government (Cukierman et al., 1992). All of these tasks influence the stability of the banking sector directly or indirectly and thus are also related to a banking crisis. The instability of the banking sector can be influenced both in the short and long run.

Statement of Problem
Even though the CBs have the prominent and important function to influence the stability of the banking sector, the ultimate

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