Towards a New Architecture for Financial Stability: Seven Principles
AbstractThis article uses insights from organizational economics and financial regulation to study the optimal architecture of supervision. It suggests that the new architecture should revolve around the following principles: (i) banking, securities and insurance supervision should be further integrated; (ii) the macro-prudential supervisory function must be in the hands of the central bank; (iii) the relation between macro- and micro-supervisors must be articulated through a management by exception system involving direct authority of the macro-supervisor over enforcement and allocation of tasks; (iv) given the difficulty of measuring output on supervisory tasks, the systemic risk supervisor must necessarily be more accountable and less independent than central banks are on their monetary task; (v) the supervisory agency cannot rely on high-powered incentives to motivate supervisors, and must rely on culture instead; (vi) the supervisor must limit its reliance on self regulation; and (vii) the international system should substitute the current loose, networked structure with a more centralized and hierarchical one. Oxford University Press 2010, all rights reserved, Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Journal of International Economic Law.
Volume (Year): 13 (2010)
Issue (Month): 3 (September)
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Other versions of this item:
- Luis Garicano & Rosa Lastra, 2010. "Towards a new architecture for financial stability: seven principles," LSE Research Online Documents on Economics 48900, London School of Economics and Political Science, LSE Library.
- Luis Garicano & Rosa Lastra, 2010. "Towards a New Architecture for Financial Stability: Seven Principles," CEP Discussion Papers dp0990, Centre for Economic Performance, LSE.
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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