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Who pays for banking supervision? Principles and practices

Author

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  • Donato Masciandaro
  • Maria Nieto
  • Henriette Prast

Abstract

This paper focuses on the financing of banking supervision. Countries are classified according to who finances banking supervision the tax payer and/or the supervised industry -, and how the budget and fees are determined. We show that funding regimes differ across countries. Public funding is more often found when banks are supervised by the central bank, while supervision funded via a levy on the regulated banks is more likely in the case of a separate financial authority. Finally, some countries apply mixed funding. In general, there is a trend toward more private funding. We also find a relation between sources of financing and accountability arrangements. Public financing is associated with accountability towards the parliament, while private financing is more likely to go hand in hand with accountability towards the government. The financing issue is important because the financing regime may affect the behaviour of the supervisor and hence the quality of supervision. Regulatory capture, industry capture and the supervisor's self interest may affect supervisory policy. No theoretical model has been developed prescribing the optimal financing of supervision. Our results suggest that the actual choice of financing is a casual one, not based on either considerations of incentive-compatability or on the beneficiary approach. As it is to be expected that financial regulation will become more internationally organized in the future, careful analysis of the financing issue will become even more relevant.

Suggested Citation

  • Donato Masciandaro & Maria Nieto & Henriette Prast, 2007. "Who pays for banking supervision? Principles and practices," DNB Working Papers 141, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:141
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    File URL: https://www.dnb.nl/binaries/Working%20Paper%20141-2007_tcm46-156157.pdf
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    References listed on IDEAS

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    3. Repullo, Rafael, 2000. "Who Should Act as Lender of Last Resort? An Incomplete Contracts Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 580-605, August.
    4. Kane, Edward J, 1990. " Principal-Agent Problems in S&L Salvage," Journal of Finance, American Finance Association, vol. 45(3), pages 755-764, July.
    5. Udaibir S Das & Marc G Quintyn & Kina Chenard, 2004. "Does Regulatory Governance Matter for Financial System Stability? An Empirical Analysis," IMF Working Papers 04/89, International Monetary Fund.
    6. Marc Quintyn & Michael W. Taylor, 2003. "Regulatory and Supervisory Independence and Financial Stability," CESifo Economic Studies, CESifo, vol. 49(2), pages 259-294.
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    Citations

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    Cited by:

    1. Donato Masciandaro & Maria J. Nieto & Marc Quintyn, 2011. "Will They Sing the Same Tune? Measuring Convergence in the New European System of Financial Supervisors," Chapters,in: Handbook of Central Banking, Financial Regulation and Supervision, chapter 17 Edward Elgar Publishing.

    More about this item

    Keywords

    banking supervision; budgetary independence; accountability; financial governance; central banks; financial authorities.;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G3 - Financial Economics - - Corporate Finance and Governance

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