Advocacy for Central Bank Governance: Lessons from Walter Bagehot's Lombard Street
This article discusses the proposals of Walter Bagehot (1826-1877) on the governance of the Bank of England since the Charter Act (1844). In Lombard Street, Bagehot (1873) points out the paradox of the Bank of England since its creation in 1694 and after the Peel Act in 1844: for one hand, it is a "Joint Stock Bank" whose capital is held by private shareholders and for the other hand, it is entrusted with missions that are in the public interest: lending to the State, restructuring of public debt, holding the nation's gold reserve and managing liquidity crises. According to Bagehot (1873), if the Bank of England succeeded in solving this paradox, it was fundamentally thanks to the establishment of corporate governance rules that he exposed and discussed in his book. The contribution of this article is to highlight Bagehot's pioneering proposals on the principles of optimal bank governance and his examination of banks' role in reconciling the interests of the various stakeholders of the "old lady of Threadneedle." This article adds to the history of bank governance by reading Lombard Street 150 years after its publication.
Area: Eshet Conference
Keywords: Governance, stakeholders, banking supervision, conflicts of interest, Bank of England.
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