Gender balance in central banks

More than a business case to be made for diversity

One of the oft-cited arguments used to convince organisations to commit to gender diversity is how it benefits decision-making. A new report by the International Finance Corporation finds that private equity and venture capital funds with gender-balanced senior investment teams generated 10%-20% higher returns compared with funds that have a majority of male or female leaders. This thesis is supported by econometric analysis conducted by the International Monetary Fund looking at women in bank and supervisory boards. Controlling for relevant bank and country-specific factors, the presence of women as well as a higher share of women are associated with greater financial resilience in the form of higher capital buffers, higher profits and lower non-performing loans.

Applying such analysis to central banks is tricky, if not impossible, chiefly due to the lack of a robust sample to conduct econometrics. According to the 2019 OMFIF Gender Balance Index, out of 173 central banks globally, only 13 are headed by women. The number rises to just 63 when including deputy governors, while one in five central banks has no women whatsoever in the top 10-15 most senior positions. There is no example of a perfectly-balanced central bank senior team when it comes to gender. Iceland, Rwanda and Albania come close, with scores over 80 (where a score of 100 means an institution is perfectly balanced). But the global average stands at 25, making it hard to draw any conclusions on causality in terms of outcomes related to price and financial stability.

Still, anecdotal evidence and views from central bankers highlight the benefits of diversity in helping to reduce the likelihood of ‘groupthink’. Speaking on an OMFIF podcast, Ed Sibley, deputy governor of the Central Bank of Ireland and chair of the bank’s diversity and inclusion steering group, highlighted how system failings related to groupthink and insufficiently challenged assumptions contributed to the depth of the 2008 financial crisis in Ireland through poor risk management and decision-making.

In a separate interview for OMFIF published in the 2019 GBI, Bank of England Deputy Governor Ben Broadbent said, ‘You are more likely to get the right decision through deliberation and discussion among a range of people.’ He added, ‘If a body of people looks uniform, it might suggest it is less open to considering a range of views on important decisions.’

There is a second element to the business case for promoting gender diversity. By supporting women’s progression throughout their careers, organisations make better use of female potential, helping grow the pool of experience, expertise and talent among their employees. Such strategies help create and promote role models that can change outdated notions about women’s abilities. They can encourage and inspire younger cohorts to join and flourish in traditionally male-dominated fields such as central banking. For society at large, they ensure there is a wider pool of talent from which organisations can hire.

The question is how to do it. Top-level decision-makers responsible for the hiring of senior personnel acknowledge privately that diversity has risen in importance as a factor in their hiring decisions. One central banker admitted that when faced with three equally competent candidates, they would choose consciously the woman or other minority candidate, seeing it as an opportunity to improve the lack of diversity in the organisation.

Yet in some jurisdictions such discrimination based on gender, albeit positive for diversity, can be illegal. Providing supportive policies that can lead to the same outcome within the constraints of the law often requires more creative solutions that go beyond the final-outcome decision at the time of hiring or promotion. Bank Negara Malaysia Governor Nor Shamsiah Yunus, speaking at the IMF-World Bank Group annual meetings, pointed to the lack of caregiving as a barrier for women in progressing their careers. Flexible working policies, generous parental leave packages for both men and women, as well as job-sharing schemes are some of the initiatives central banks have launched to help promote diversity. Such initiatives can incur short-term financial costs, but the long-term benefits to the organisation’s performance and ability to make best use of talent present a strong case for pursuing them.

Danae Kyriakopoulou is Chief Economist and Director of Research at OMFIF. The latest edition of the Gender Balance Index can be downloaded here. To watch the discussion at the IMF-WBG Annual Meetings, click here:

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