Who pays for banking supervision? Principles and trends

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services. AbstractPurpose -This paper aims to analyse the economics of financing banking supervision and attempts to respond to two questions: What are the most common financing practices? Can the differences in current financing practices be explained by country-specific factors, using a path-dependence approach? Design/methodology/approach -The paper performs an empirical analysis that identifies the determinants of the financing structure of banks' prudential supervision using a sample of 90 banking supervisors (central banks and financial authorities). Findings -The paper concludes that supervisors in central banks are more likely to be publicly funded, while financial authorities are more likely to be funded via a levy on the regulated banks. The financing rule is also explained by the structure of the financial systems. Public funding is more likely in bank-oriented structures. Finally, the geographical factor is also significant: European bank supervisors are more oriented towards the private funding regime. Practical implications -In general, the paper does not find evidence of the role of the political factor, the size of the economy, the level of development and the legal tradition. Originality/value -The paper analyses the financial governance of banking supervision in a sample of 90 countries world-wide. The empirical analysis focuses on the financing rules and identifies factors that explain the differences between supervisory authorities.

Will they Sing the Same Tune? Measuring Convergence in the New European System of Financial Supervisors

“…An important instrument of agency accountability is the presentation of financial accounts, demonstrating the regularity of expenditures. Masciandaro, Nieto and Prast (2007) find that, in the case of prudential supervisors housed in central banks and financed exclusively through seigniorage, the budgeting process and financial statements are in general those of the central bank (e.g., The Netherlands, Spain and Portugal). They also share financial statements in the case of prudential supervisors financed by supervised institutions that operate within central banks and, as a consequence, do not have separate assets and liabilities (e.g., Ireland).…”

“…Formal channels of communication should include the annual report, as well as regular reporting (monthly, quarterly). Masciandaro, Nieto and Prast (2007) find anecdotal evidence that public financing of supervisory agencies is more associated with accountability towards Parliament, while private financing seems to go hand in hand with an emphasis on accountability towards government.…”

“…In general, the degree of supervisory unification seems to be inversely related with the central bank's involvement in supervision. The trade-off-and the related, so called central bank fragmentation effect 20 -was confirmed first using a crosscountry analysis of the reforms in the supervisory regimes (Masciandaro 2004(Masciandaro , 2005(Masciandaro and 2006 and analyzing the economics of the central bank fragmentation effect (Masciandaro 2007, Dalla Pellegrina and Masciandaro 2008. From a political economy point of view, the central bank fragmentation effect can be explained as a peculiar case of path dependence effect: the incumbent policymaker, in choosing the level of financial supervision consolidation, is influenced by the characteristics that already exist in terms of the central bank position.…”

“…If, for whatever reason, there is a consensus that funding needs to come from the government budget, the budget of supervision should be proposed and justified by the agency, based on objective criteria related to developments in the markets. Masciandaro, Nieto and Prast (2007) analyze the financing of banking supervision in 90 countries (including the EU countries). They show that supervisors housed in the central bank are in most cases funded through the latter's budget, while supervision funded via a levy on the regulated banks is more likely in the case of a separate financial authority, with some countries applying mixed funding.…”

Exploring governance of the new European Banking Authority—A case for harmonization?

“…Regulatory agencies that enjoy a high degree of budgetary independence are better equipped to withstand political interference (which might be exerted through budgetary pressures), to respond more quickly to newly emerging needs in the area of supervision and to ensure that salaries are sufficiently attractive to hire competent staff. Masciandaro et al (2007) find, for a sample of 90 countries (including the EU countries) that supervisors housed in the central bank are in most cases funded through the latter's budget, while supervision funded via a levy on the regulated banks is more likely in the case of a separate financial authority, with some countries applying mixed funding. In general, there seems to be a trend towards more private funding.…”