Skip to main content
×
×
Home

175 years of financial risks and returns in central banking: Danmarks Nationalbank, 1839–2014

  • Kim Abildgren (a1)
Abstract

This article explores long-term trends in risks and returns within central banking using Danmarks Nationalbank as a case study. Core earnings generated by the basic functions and the associated risks typical of a central bank accounted on average for most of the Nationalbank's financial returns over the past 175 years. For a long period, this was the result of a passive risk-management strategy under which financial risks and returns just reflected the various functions performed by the Nationalbank and not the outcome of a deliberate decision-making process. A formalised and holistic risk-management framework was introduced only in the 1990s.

Copyright
Corresponding author
K. Abildgren, Danmarks Nationalbank, Havnegade 5, DK-1093 Copenhagen K, Denmark; email: kpa@nationalbanken.dk; personal website: https://sites.google.com/view/kim-abildgren .
Footnotes
Hide All

The author wishes to thank the editor, two anonymous referees and various colleagues from Danmarks Nationalbank for useful comments on preliminary versions of this article. Views and conclusions expressed are those of the author and do not necessarily represent those of Danmarks Nationalbank. The author alone is responsible for any remaining errors.

Footnotes
References
Hide All
Abildgren K. (2008). Short-term impacts on exchange rates from portfolio flows to and from Denmark 1984–2004. Danish Journal of Economics, 146, pp. 156–77.
Abildgren K. (2010). Consumer prices in Denmark 1502–2007. Scandinavian Economic History Review, 58, pp. 224.
Abildgren K. (2014). Far out in the tails – the historical distributions of macro-financial risk factors in Denmark. Danish Journal of Economics, 152, pp. 131.
Abildgren K. (2016a). 175 years of financial risks and returns in central banking. Danmarks Nationalbank Working Papers no. 103.
Abildgren K. (2016b). A century of macro-financial linkages. Journal of Financial Economic Policy, 8, pp. 458–71.
Abildgren K. (2017). Determinants of banks’ capital structure in the pre-regulation era. European Review of Economic History, 21, pp. 6482.
Abildgren K., Andersen B. N. and Thomsen J. (2010). Monetary History of Denmark 1990–2005. Copenhagen: Danmarks Nationalbank.
Abildgren K. and Thomsen J. (2011). Monetary policy after the crisis: ten lessons from a fixed-exchange-rate regime. SUERF Studies, 3, pp. 1734.
Adler G., Castro P. and Tovar C. E. (2016). Does central bank capital matter for monetary policy? Open Economies Review, 27, pp. 183205.
Archer D. and Moser-Boehm P. (2013). Central bank finances. BIS Papers no. 71.
Bank Of England. (1967). Bank of England liabilities and assets: 1696 onwards. Bank of England Quarterly Bulletin, 7, pp. 159–63.
Bank For International Settlements (2009). Issues in the Governance of Central Banks. Basel: BIS.
Bank For International Settlements (2011). Portfolio and Risk Management for Central Banks and Sovereign Wealth Funds. Basel: BIS.
Bernadell C., Cardon P., Coche J., Diebold F. X. and Manganelli S. (eds.) (2004). Risk Management for Central Bank Foreign Reserves. Frankfurt: European Central Bank.
Bholat D. and Darbyshire R. (2016). Accounting in central banks. Bank of England Staff Working Paper no. 604.
Bindseil U., González F. and Tabakis E. (eds.) (2009). Risk Management for Central Banks and Other Public Investors. Cambridge: Cambridge University Press.
Blancheton B. (2016). Central bank independence in a historical perspective: myth, lessons and a new model. Economic Modelling, 52, pp. 101–7.
Bordo M. D. (1990). The lender of last resort: alternative views and historical experience. FRB Richmond Economic Review, 76, pp. 1829.
Borio C. and Disyatat P. (2010). Unconventional monetary policies: an appraisal. The Manchester School, 78, pp. 5389.
Buiter W. (2008). Can central banks go broke? CEPR Policy Insight no. 24.
Capie F., Fischer S., Goodhart C. and Schnadt N. (eds.) (1994). The Future of Central Banking. Cambridge: Cambridge University Press.
Capie F. and Wood G. (2013). Central bank independence: a victim of the crisis? Economic Affairs, 33, pp. 379–85.
Carpenter S., Ihrig J., Klee E., Quinn D. and Boote A. (2015). The Federal Reserve's balance sheet and earnings: a primer and projections. International Journal of Central Banking, 11, pp. 237–83.
Christensen J. H. E, Lopez J. A. and Rudebusch G. D. (2015). A probability-based stress test of Federal Reserve assets and income. Journal of Monetary Economics, 73, pp. 2643.
Cukierman A. (2008). Central bank independence and monetary policymaking institutions: past, present and future. European Journal of Political Economy, 24, pp. 722–36.
Cukierman A. (2011). Central bank finances and independence: how much capital should a central bank have? In Milton S. and Sinclair P. (eds.), The Capital Needs of Central Banks. New York: Routledge.
Danmarks Nationalbank (2003). Financial Management at Danmarks Nationalbank. Copenhagen: Danmarks Nationalbank.
Danmarks Nationalbank (1999). Report and Accounts 1998. Copenhagen: Danmarks Nationalbank.
Danmarks Nationalbank (2014). Report and Accounts 2013. Copenhagen: Danmarks Nationalbank.
Danmarks Nationalbank (2015). Report and Accounts 2014. Copenhagen: Danmarks Nationalbank.
Del Negro M. and Sims C. A. (2015). When does a central banks balance sheet require fiscal support? Journal of Monetary Economics, 73, pp. 1119.
Eichengreen B. and Flandreau M. (1996). The geography of the gold standard. In De Macedo J. B., Eichengreen B. and Reis J. (eds.), Currency Convertibility: The Gold Standard and Beyond. London: Routledge,.
European Central Bank (2015). The Financial Risk Management of the Eurosystem's Monetary Policy Operations. Frankfurt: ECB.
Ferguson N., Schaab A. and Schularick M. (2015). Central bank balance sheets: expansion and reduction since 1900. Centre for Economic Policy Research Discussion Paper no. 10635.
Flandreau M. (2008). Pillars of globalisation: a history of monetary policy targets, 1797–1997. In Beyer A. and Reichlin L. (eds.), The Role of Money: Money and Monetary Policy in the Twenty-First Century. Frankfurt: European Central Bank.
Foster J. (2004). Central bank risk management and international accounting standards. In Carver N. and Pringle R. (eds.), New Horizons in Central Bank Risk Management. London: Central Banking Publications.
Fregert K. (2014). The Riksbank balance sheet, 1668–2011. In Edvinsson R., Jacobson T. and Waldenström D. (eds.), Historical Monetary and Financial Statistics for Sweden, vol. ii: House Prices, Stock Returns, National Accounts, and the Riksbank Balance Sheet, 1620–2012. Stockholm: Ekerlids Förlag.
Gerlach S., Scatigna M. and Ramaswamy S. (2006). 150 years of financial market volatility. BIS Quarterly Review, 2006, pp. 7791.
Goodfriend M. (2011). Central banking in the credit turmoil: an assessment of Federal Reserve practice. Journal of Monetary Economics, 58, pp. 112.
Goodhart C. A. E. (1988). The Evolution of Central Banks. Cambridge, MA: MIT Press.
Goodhart C. A. E. (2011). The changing role of central banks. Financial History Review, 18, pp. 135–54.
Goodhart C. A. E. (2016). Central bank evolution. lessons learnt from the sub-prime crisis. In Bordo M. D., Eitrheim Ø., Flandreau M. and Qvigstad J. F. (eds.), Central Banks at a Crossroads: What Can We Learn from History? Cambridge: Cambridge University Press.
Halbeisen P. and Maurer D. (2007). Swiss National Bank balance sheets and income statements. Swiss National Bank Historical Time Series no. 3.
Hansen I. and Ølgaard C. (2000). Danmarks Nationalbank's risk management. Danmarks Nationalbank Monetary Review, 39, pp. 103–17.
Hansen P. H. (1996). På glidebanen til den bitre ende. Dansk bankvæsen i krise 1920–1933. Odense: Odense Universitets Forlag.
Hartogsohn S. (1936). Nyordningen af Danmarks Seddelbank. Nordisk Administrativt Tidsskrift, 17, pp. 135–48.
Hoffmeyer E. and Olsen E. (1968). Dansk pengehistorie 1914–1960. Copenhagen: Danmarks Nationalbank.
Humphrey T. M. (1975). The classical concept of the lender of last resort. FRB Richmond Economic Review, 61, pp. 29.
Humphrey T. M. (1989). Lender of last resort: the concept in history. FRB Richmond Economic Review, 75, pp. 816.
Hvidsten V. (2013). Norges Banks balanse 1817–1945: konsolidering av delregnskapene. Norges Bank Staff Memo no. 11.
Ize A. (2005). Capitalizing central banks: a net worth approach. IMF Staff Papers, 52, pp. 289310.
Johansen H. C. (1985). Danish Historical Statistics 1814–1980. Copenhagen: Gyldendal.
Jorion P. (1997). Value at Risk. New York: McGraw-Hill.
Karakitsos P., Merriman N., Schwarz C. and Studener W. (2015). Why accounting matters: a central bank perspective. Accounting, Economics and Law – A Convivium, 5, pp. 142.
Mikkelsen R. (1993). Dansk pengehistorie 1960–1990. Copenhagen: Danmarks Nationalbank.
Moessner R. and Allen W. A. (2011). Banking crises and the international monetary system in the Great Depression and now. Financial History Review, 18, pp. 120.
Nielsen A. (1917). Den Skandinaviske Møntunion – Et Historisk Rids. Copenhagen: Børsen's Forlag.
Øksendal L. F. (2007). The impact of the Scandinavian Monetary Union on financial market integration. Financial History Review, 14, pp. 125–48.
Pattipeilohy C. (2013). A descriptive analysis of the balance sheet and monetary policy of De Nederlandsche Bank 1900–1998 and beyond. De Nederlandsche Bank Occasional Studies no. 11(3).
Perera A., Ralston D. and Wickramanayake J. (2013). Central bank financial strength and inflation: is there a robust link? Journal of Financial Stability, 9, 399414.
Reinhart C. M. and Rogoff K. S. (2004). The modern history of exchange rate arrangements: a reinterpretation. Quarterly Journal of Economics, 119, pp. 148.
Reis R. (2013). Central bank design. Journal of Economic Perspectives, 27, pp. 1744.
Rubow A. (1918). Nationalbankens historie 1818–1878. Copenhagen: Nationalbanken i Kjøbenhavn.
Schrøder S. and Thamsborg S. H. (2012). Danmarks Nationalbank's earnings and risk during the crisis. Danmarks Nationalbank Monetary Review 51, pp. 7188.
Stella P. (1997). Do central banks need capital? IMF Working Paper no. 83.
Stella P. (2005). Central bank financial strength, transparency, and policy credibility. IMF Staff Papers, 52, pp. 335–65.
Turner P. (2011). Fiscal dominance, the long-term interest rate and central banks. In Berg S. A., Eitrheim Ø., Qvigstad J. F. and Ryel M. (eds.), What Is a Useful Central Bank? Oslo: Norges Bank.
Ugolini S. (2012). Foreign exchange reserve management in the 19th century: the National Bank of Belgium in the 1850s. In Ögren A. and Øksendal L. F. (eds.), The Gold Standard Peripheries: Monetary Policy, Adjustment and Flexibility in a Global Setting. New York: Palgrave Macmillan.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Financial History Review
  • ISSN: 0968-5650
  • EISSN: 1474-0052
  • URL: /core/journals/financial-history-review
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Keywords:

Metrics

Full text views

Total number of HTML views: 1
Total number of PDF views: 3 *
Loading metrics...

Abstract views

Total abstract views: 24 *
Loading metrics...

* Views captured on Cambridge Core between 5th December 2017 - 18th December 2017. This data will be updated every 24 hours.