E Pluribus Unum? Authorities' Design in Financial Supervision: Trends and Determinants

Abstract

This paper presents an analysis of recent trends and determinants in the architectures of financial supervision, focused on the authorities design. We propose a path dependence approach to study the single authority versus multi-authority dilemma, considering the level of financial supervision consolidation as the dependent variable. In particular, in a movement towards full consolidation in supervision, one can think of two sharp alternatives: a monopolist central bank or a pure single financial authority. Given that the degree of supervision consolidation seems to be inversely correlated with central bank involvement in supervision itself, the paper sheds light on the possible explanation of this trade-off. The trade off is tested using Probit techniques with a sample of 68 countries. Copyright Springer Science + Business Media, Inc. 2006financial supervision, single authority, central bank,

Self-regulation and compliance enforcement practices by the Investment Dealers Association in Canada

“…Unified regulation generates economies of scale as expertise are interconnected across sectors and, therefore, seen as more cost effective than specialist regulation (Goodhart and Schoemaker, 1993). Regulation under the unified model is considered to be more flexible and helps achieve competitive neutrality by avoiding excessive rule-making -a trait that characterizes agencies trading and dealing with multiple products (Goodhart, 2000;Lokanan, 2014a;Masciandaro, 2006). It is also argued that inter-agency problems such as turf wars (Williams, 2012) and political interference (Calomiris & Haber, 2014), which characterize the multi-agency model, can be subverted and addressed under a unified model (Ryder, Turksen and Hassler, 2014;Sinclair, 1997;Schwarz, 2014;Yackee, 2013).…”

“…On the other extreme, the arguments for a multi-agency model are as strong, if not stronger, than the arguments for the unified model (Goodhart, 2000;Lokanan, 2014a;Masciandaro, 2004Masciandaro, , 2006. Chief among these arguments is that a unified regulatory model can suffer from diseconomies of scale.…”

The Diffusion of Financial Supervisory Governance Ideas

“…non-ideational arguments for unified supervision was that as financial companies expanded across, sectors supervisors should or are likely to do the same (Čihák and Podpiera, 2007, Lastra, 2003, Masciandaro, 2006. 21 Returning to the example of the Taiwanese Financial Supervisory Commission, they also highlight financial market consolidation as a reason for creation.…”

“…A seminal paper on the topic was published by Goodhart and Schoenmaker in 1997. It was followed by many other works (for examples see Goodhart, 2002, Quintyn, Ramirez and Taylor, 2007, Masciandaro, 2006, Masciandaro, Quintyn and Taylor, 2008. Usually 'independence' meant a regulator separate from elected officials, private interests, and even the CB (Goodhart andSchoenmaker, 1997, Quintyn andTaylor, 2003 To make a sturdier causal case, in this section I lay out theoretical arguments for how these particular best practice ideas could have caused observed convergence trends.…”

Central bankers as supervisors: Do crises matter?

“…Throughout the 1990s and early 2000s, the creation of financial sector supervisors independent from the central bank has been generally associated with the reputational failures of many central banks during banking crises (Masciandaro, 2006;Masciandaro and Quintyn, 2009). Yet, following the 2007-09 Global Financial Crisis, many countries have actually increased the involvement of central banks in financial sector supervision, suggesting a sort of "great reversal" towards prudential supervision in the hands of central banks (Dalla Pellegrina et al, 2013).…”