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The Fear of Freedom; Politicians and the Independence and Accountability of Financial Sector Supervisors

Author

Listed:
  • Michael W Taylor
  • Marc G Quintyn
  • Silvia Ramirez

Abstract

Compared with the case of central bank independence, independence for financial sector supervisors remains more controversial. This paper analyzes changes in independence and accountability arrangements in a set of 32 countries that overhauled their legal and/or institutional frameworks for supervision in recent years. Despite improvements, there is strong evidence that the endorsement of independence remains half-hearted, which shows itself through either overcompensation on the accountability side, or resort to political control mechanisms. The latter could potentially undermine the agency's credibility. The results indicate that policymakers still need to be persuaded of the long-term benefits of independence for financial sector soundness, and of the potential for a virtuous interaction between independence and accountability, if the arrangements are well-designed.

Suggested Citation

  • Michael W Taylor & Marc G Quintyn & Silvia Ramirez, 2007. "The Fear of Freedom; Politicians and the Independence and Accountability of Financial Sector Supervisors," IMF Working Papers 07/25, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/25
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    Cited by:

    1. Donato Masciandaro & Marc Quintyn, 2011. "Regulating the Regulators: The Changing Face of Financial Supervision Architectures Before and After the Financial Crisis," Chapters,in: Handbook of Central Banking, Financial Regulation and Supervision, chapter 16 Edward Elgar Publishing.
    2. Masciandaro, Donato & Quintyn, Marc & Taylor, Michael W., 2008. "Inside and outside the central bank: Independence and accountability in financial supervision: Trends and determinants," European Journal of Political Economy, Elsevier, vol. 24(4), pages 833-848, December.
    3. Melanie S. Milo, 2007. "Integrated Financial Supervision : An Institutional Perspective for the Philippines," Finance Working Papers 22667, East Asian Bureau of Economic Research.
    4. Milo, Melanie S., 2007. "Integrated Financial Supervision: an Institutional Perspective for the Philippines," Discussion Papers DP 2007-17, Philippine Institute for Development Studies.
    5. Jorge Ponce, 2010. "A Normative Analysis of Banking Supervision: Independence, Legal Protection and Accountability," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 141-181, July-Dece.
    6. Marc Quintyn, 2007. "Governance of Financial Supervisors and its Effects - A Stocktaking Exercise," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    7. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2010. "Chancen für einen stabilen Aufschwung. Jahresgutachten 2010/11," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201011.
    8. Masciandaro, Donato & Nieto, Maria J. & Quintyn, Marc, 2011. "Exploring governance of the new European Banking AuthorityâA case for harmonization?," Journal of Financial Stability, Elsevier, vol. 7(4), pages 204-214, December.
    9. 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.
    10. Marc Quintyn, 2009. "Independent agencies: more than a cheap copy of independent central banks?," Constitutional Political Economy, Springer, vol. 20(3), pages 267-295, September.
    11. Sofía Bauducco & Aleš Bulir & Martin Èihák, 2011. "Monetary Policy Rules with Financial Instability," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(6), pages 545-565, December.
    12. Christopher Gandrud & Mark Hallerberg, 2015. "Does Banking Union Worsen the EU's Democratic Deficit? The Need for Greater Supervisory Data Transparency," Journal of Common Market Studies, Wiley Blackwell, vol. 53(4), pages 769-785, July.
    13. Boyer, Pierre C. & Ponce, Jorge, 2012. "Regulatory capture and banking supervision reform," Journal of Financial Stability, Elsevier, vol. 8(3), pages 206-217.
    14. repec:nzb:nzbbul:dec2017:11 is not listed on IDEAS
    15. Christopher Gandrud, 2013. "The diffusion of financial supervisory governance ideas," Review of International Political Economy, Taylor & Francis Journals, vol. 20(4), pages 881-916, August.

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