This paper adds some new arguments to the thesis that the responsibility for banking supervision should be assigned to an agency formally separated by the Central bank. We also provide some additional evidence on the macro and microeconomic performance of OECD countries whose banking systems are classified according to the regulatory regime in place. We find that the inflation rate is considerably higher and more volatile in countries where the Central bank acts as a monopolist in banking supervision. Besides, although banks seem to be more profitable when Central banks supervise them, they incur into higher costs and rely more on deposits with respect to more sophisticated liabilities as a funding source. The data are not definitively in favor of functional separation. However, we argue that the evolution of financial intermediaries, moral hazard problems and especially cost accountability seem to suggest that separation would be a better solution for industrialized countries. We also critically discuss the current arrangement of financial regulation and supervision in the EMU: our proposal is to establish an independent European System of Financial Supervisors (ESFS) structured similarly to the ESCB.
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number
411.
Find related papers by JEL classification: E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook G2 - Financial Economics - - Financial Institutions and Services
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Lars Calmfors & Giancarlo Corsetti & John Flemming & Seppo Honkapohja & John Kay & Willi Leibfritz & Gilles Saint-Paul & Hans-Werner Sinn & Xavier Vives, 2003.
"Financial Architecture,"
EEAG Report on the European Economy,
CESifo Group Munich, vol. 0, pages 98-117, 05.
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