Financial infrastructure and corporate governance
AbstractAn essential part of the financial system is its infrastructure: for example, payment systems, securities settlement systems, central counterparties and messaging services. These enable transactions ranging from retail payments through to business in domestic and international wholesale financial markets. Given this, were any such system to fail, this could affect the whole economy. This threat to financial stability largely explains why central banks seek to ensure – via their ‘oversight’ role – that financial infrastructures take sufficient measures to mitigate risk. This paper explores the role of governance of infrastructures in the management of systemic risk. We do this by considering the case of a generic infrastructure provider operating under different forms of ownership. We show that, in the presence of consumption externalities, the level of risk mitigation chosen by the infrastructure provider is less than socially optimal. We then show that governance may have a role in adapting a provider’s decision-making process to take due account of their risk externalities and, hence, provide a more socially optimal level of risk mitigation. Specifically, we suggest a feasible adaptation could be for infrastructures to appoint external stakeholder representatives to their boards with a specific remit to act in the wider public interest.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 316.
Date of creation: Dec 2006
Date of revision:
Contact details of provider:
Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schmalensee, Richard, 1973. "A Note on the Theory of Vertical Integration," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 442-49, Part I, M.
- Blair, Roger D & Kaserman, David L, 1978. "Vertical Integration, Tying, and Antitrust Policy," American Economic Review, American Economic Association, vol. 68(3), pages 397-402, June.
- Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
- Oliver Hart & John Moore, 1996.
"The Governance of Exchanges: Members Co-operatives Versus Outside Ownership,"
STICERD - Theoretical Economics Paper Series
292, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Hart, Oliver & Moore, John, 1996. "The Governance of Exchanges: Members' Cooperatives versus Outside Ownership," Oxford Review of Economic Policy, Oxford University Press, vol. 12(4), pages 53-69, Winter.
- Josef Falkinger, 2000.
"A Simple Mechanism for the Efficient Provision of Public Goods: Experimental Evidence,"
American Economic Review,
American Economic Association, vol. 90(1), pages 247-264, March.
- Josef Falkinger & Ernst Fehr & Simon Gaechter, . "A Simple Mechanism for the Efficient Provision of Public Goods - Experimental Evidence," IEW - Working Papers 003, Institute for Empirical Research in Economics - University of Zurich.
- Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, November.
- Nicholas Economides, 1997.
"The Economics of Networks,"
Brazilian Electronic Journal of Economics,
Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
- Vernon, John M & Graham, Daniel A, 1971. "Profitability of Monopolization by Vertical Integration," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 924-25, July-Aug..
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Publications Team).
If references are entirely missing, you can add them using this form.