The role of central bank capital

It is generally recognised that it is important for a central bank to have a strong balance sheet and adequate capital, but there is little consensus either on what level is "adequate", or why precisely it is needed. Central bankers who feel that it is important to have a cushion of capital should be encouraged by an ECB paper1 published in September. This paper provides a theoretical framework, which it claims was previously underdeveloped, to show why central banks need adequate capital and