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Financial Supervision: Which Model for Europe?

Listed author(s):
  • Peter Wierts
  • Dirk Schoenmaker

Increasing integration within the European Union (EU) gives rise to cross-border spill-over effects or externalities. The present national based system of financial supervision does not incorporate theseexternalities. Assessing the degree of integration, we find that the EU has not yet a fully integrated financial market. But if and when the process of integration is nearing completion, policy-makers willneed to consider moving to European solutions.How to choose an appropriate supervisory model for Europe? Responding to the trend of cross-sector integration, two main models have emerged: a functional model (separate supervisors for prudentialsupervision and conduct of business) and an integrated model (a single supervisor). The jury is still out on which model performs better (e.g. in weathering a financial crisis). We propose to apply some degree of model competition to facilitate the discovery of the best model.Finally, we explore the question of the appropriate policy stance for financial supervision in Europe. Key elements of such a policy stance are supervisory skills, market discipline and private-sector control. Policy standards could be further developed via benchmarking of best practices within the new Lamfalussy framework.

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File URL: http://www.lse.ac.uk/fmg/documents/specialPapers/2002/sp143.pdf
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Paper provided by Financial Markets Group in its series FMG Special Papers with number sp143.

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Date of creation: Jul 2002
Handle: RePEc:fmg:fmgsps:sp143
Contact details of provider: Web page: http://www.lse.ac.uk/fmg/

References listed on IDEAS
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  1. Calomiris, Charles W., 1999. "Building an incentive-compatible safety net," Journal of Banking & Finance, Elsevier, vol. 23(10), pages 1499-1519, October.
  2. Jürgen Von Hagen & Ingo Fender, 1998. "Central Bank Policy in a More Perfect Financial System," Open Economies Review, Springer, vol. 9(1), pages 493-532, January.
  3. Heinemann, Friedrich & Jopp, Mathias, 2002. "The benefits of a working European Retail Market for financial services: Report to European Financial Services Round Table," ZEW Expertises, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research, number 110486.
  4. Xavier Vives, 2001. "Restructuring Financial Regulation in the European Monetary Union," Journal of Financial Services Research, Springer;Western Finance Association, vol. 19(1), pages 57-82, February.
  5. Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-560, October.
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