Central Bank of the Republic of Turkey as a Sui Generis Joint Stock Company and the President’s Scope of Interference

Central Bank of the Republic of Turkey as a Sui Generis Joint Stock Company and the President’s Scope of Interference

Central bank is an institution responsible for the monetary policies of a country. In Turkey, this institution is the Central Bank of the Republic of Turkey [“CBRT”], based and operating in Ankara. CBRT operates as a joint stock corporation in accordance with its now-defunct establishment law, Law No.1715 dated 30.6.1930 and the current Law on the Central Bank of the Republic of Turkey No.1211 dated 14.1.1970 [“the Law”] which superseded the establishment law. While the CBRT is a joint stock corporation, it has a distinct structure compared to a usual joint stock corporation formed under the Turkish Commercial Code [“TCC”]. This sui generis joint stock corporation remains a topic of debate amidst arguments about its independence. Accordingly, the powers of the President of the Republic of Turkey and his interferences to the CBRT will be examined in the context of corporate law.

CBRT’s organizational structure

The shares of CBRT are divided into 4 classes, where the A class belongs to the Treasury, the B class to nationalised banks, the C class to other banks and privileged companies, and the D class to the Turkish general public and legal entities. As of July 2020, A class shares constitute 55,12% of CBRT shares while 23,25% of the shares are B class and respectively 2,51% and 19,12% of the shares are C and D class shares. Therefore, the majority of the shares [i.e., 55,12%] belong to the Treasury.

In terms of organizational structure, CBRT is comprised of six bodies which are the General Assembly, the Board, the Monetary Policy Committee, the Auditing Committee, the Governor, and the Executive Committee. At a first glance, the Articles of Association of the CBRT [“the Articles of Association”] may suggest that the General Assembly, Auditing Committee, the Board, and the Governor are at the same level, and that the Governor is responsible for the Monetary Policy Committee and the Executive Committee. Nonetheless, the Board, which has complete control over CBRT, is comprised of 6 members elected by the Executive Committee and the Governor. The Auditing Committee, which is responsible for the auditing of the entirety of the proceedings and accounts consists of 4 members chosen by the General Assembly. Hence, the executive power and the decision-making responsibility mainly belongs to the Governor and the General Assembly.

In the General Assembly, every 10 shares grant one voting right. The general assembly convenes with the majority of the shares [50% + 1] and adopts decisions with the majority of the present votes. Furthermore, the Governor presides over general assembly meetings. This means that the Treasury, which owns 55,12% of the shares, is able to convene and adopt decisions in the General Assembly by itself. In this context, Treasury means the entirety of the state as a legal entity comprised of the public assets and debts, rights, and receivables belonging to administrative institutions operating within the general budget. In turn, the President represents the State as a legal entity as the head of the executive branch.

Governor is under direct supervision of the President and is hierarchically ranked below him

When we look at the Governor, s/he is directly appointed by the President of the Republic in accordance with the “Presidential Decree on the Appointment Procedure of Executives and Public Servants” dated 10.7.2018. Therefore, the Governor is under direct supervision of the President and is hierarchically ranked below him.

Our foregoing explanations on the shareholder structure and decision-making mechanism of the CBRT suggest that the President indirectly acts as the superior executive and decision maker of the CBRT especially in a Presidential System where micro-management is adopted as a rule. Hence, the interferences of the President to the CBRT, a sui generis joint stock corporation, can be considered in line with Turkish corporate law given that the CBRT governance is ultimately linked to the President.

Nevertheless, even if CBRT differs from any other common bank, it is still a bank and therefore, an institution inherently reliant on trust and confidence. In this respect, even if the shareholder structure and decision-making mechanism demonstrate that the Presidential interference with the CBRT comply with the law, almost all reputable economists worry about the adverse effects of such interference from an institutional trust and confidence perspective.