Financial regulators’ climate mandate should be formalised

Sergio Scandizzo and Tony Hughes

Most major central banks around the world are nominally independent of their elected representatives. Financial regulators are delegated a range of important responsibilities that would normally be the purview of the legislature but which, in the past, have been seriously undermined by the competitive political process. Delegating these tasks – the aims of which are normally uncontroversial – allows them to be handled by public servants who are largely disinterested in the results of elections.

This independence is not absolute and is normally bestowed only by convention. Though it has never been fully tested, corruption or gross incompetence demonstrated by officials would force the elected representatives to suspend the independence of the bank. Though they would face an electoral backlash, we can also imagine a powerful prime minister or president acting to remove a competent central banker for purely political purposes. It goes without saying that the only recourse for a voter who is dissatisfied with the performance of the central bank would be to lobby their elected representatives to take this kind of action. As we have made clear, the independence of the financial regulator