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Improving Banking Supervision

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Author Info

  • Mayes, David G.

    ()
    (Bank of Finland Research)

Abstract

This paper explains how banking supervision within the EU, and in Finland in particular, can be improved by the implementation of greater market discipline and related changes. Although existing EU law, institutions, market structures and practices of corporate governance restrict the scope for change, substantial improvements can be introduced now while there is a window of opportunity for change. The economy is growing H5ly and the consequences of the banking crises of the early 1990s have been worked through. Greater market discipline, in the form of a regime of quarterly public disclosure by banks of their capital adequacy, peak exposures and risk management systems, along with improved incentives, will help improve the prudential management of banks, reduce the costs of supervision, enable supervisors to focus on systemic risks and help customers determine the risks they face. Banking inherently involves the taking of risks, but transparency and improved public information about them will help all concerned manage the risks more effectively and greatly reduce the chance that the taxpayer will again be called upon to help rescue the banking system.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/DP_23_1998.pdf
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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 23/1998.

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Length: 45 pages
Date of creation: 12 Nov 1998
Date of revision:
Handle: RePEc:hhs:bofrdp:1998_023

Contact details of provider:
Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Related research

Keywords: banking supervision; market discipline; disclosure; systemic risk; financial system oversight;

References

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  1. Acemoglu, D. & Verdier, T., 1996. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," Working papers 96-5, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Tirole, Jean, 1996. "A Theory of Collective Reputations (with Applications to the Persistence of Corruption and to Firm Quality)," Review of Economic Studies, Wiley Blackwell, vol. 63(1), pages 1-22, January.
  3. Robert C. Merton, 1995. "Financial Innovation and the Management and Regulation of Financial Institutions," NBER Working Papers 5096, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. David G. Mayes, 2008. "Avoiding the Next Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 9(4), pages 44-50, December.
  2. Hyytinen, Ari & Takalo, Tuomas, 2000. "Enhancing Bank Transparency: A Re-assessment," Research Discussion Papers 10/2000, Bank of Finland.
  3. Singh, Rupinder, 2000. "Bank Regulation, Compliance and Enforcement," BOFIT Discussion Papers 2/2000, Bank of Finland, Institute for Economies in Transition.
  4. Llewellyn, David T. & Mayes , David G., 2003. "The role of market discipline in handling problem banks," Research Discussion Papers 21/2003, Bank of Finland.
  5. Mayes, David G. & Nieto, María J. & Wall, Larry, 2008. "Multiple safety net regulators and agency problems in the EU: Is Prompt Corrective Action partly the solution?," Journal of Financial Stability, Elsevier, vol. 4(3), pages 232-257, September.
  6. Mayes , David G. & Virén , Matti, 2004. "Asymmetries in the Euro area economy," Research Discussion Papers 9/2004, Bank of Finland.

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