Inside and Outside of the Central Banks: Independence and Accountability in Financial Supervision -Trends and Determinants

Who Should Supervise? The Structure of Bank Supervision and the Performance of the Financial System

“…Supervision is more likely to be assigned to an independent agency where public-sector accountability is high, accountability being a standard quid pro quo for independence; for arguments to this effect see inter alia Plosser (2010). Masciandero, Quintyn and Taylor (2008) report similar findings. Finally, supervision is more likely to be assigned to the central bank in countries rated highly in terms of rule of law and political stability; these correlations are harder to interpret.…”

“…Where a central bank website or related sources indicate that supervisory responsibility lies with another government agency, we cross-checked the website of the agency in question. The resulting information was then further verified by checking the statutes in question and using independent descriptions on the website of the Bank for International Settlements and in Courtis (1999), Keay (2008), and Masciandero, Quintyn and Taylor (2008).…”

“…Goodhart andSchoenmaker 1995, Goodhart, Hartmann, Llewellyn, Rojas-Suarez andWeisbrod 1998), but for much more limited sets of countries. More recently, Masciandero, Quintyn and Taylor (2008) construct measures of the independent of supervisors (distinguishing supervision by the central bank from supervision by another public agency) for 55 countries for a shorter period of time than considered here. We return to some of their findings below.…”

The diffusion of financial supervisory governance ideas

“…12 Much of the literature and documents from government and international organizations on financial supervision uses the term "independence" (see Goodhart andSchoenmaker, 1997, Masciandaro, Quintyn andTaylor, 2008). This can be a confusing term since the authors are often referring to making the supervisor independent of a possibly already independent CB.…”

“…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.…”