Should banking supervision and monetary policy tasks be given to different agencies?
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.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pagano, Marco & Jappelli, Tullio, 1993.
" Information Sharing in Credit Markets,"
Journal of Finance,
American Finance Association, vol. 48(5), pages 1693-1718, December.
- Allen, Franklin & Santomero, Anthony M., 1997.
"The theory of financial intermediation,"
Journal of Banking & Finance,
Elsevier, vol. 21(11-12), pages 1461-1485, December.
- Dirk Schoenmaker, 1992. "Institutional Separation between Supervisory and Monetary Agencies," FMG Special Papers sp52, Financial Markets Group.
- Joseph G. Haubrich, 1996. "Combining bank supervision and monetary policy," Economic Commentary, Federal Reserve Bank of Cleveland, issue Nov.
- Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
- Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, 1999.
"Is Bank Supervision Central to Central Banking?,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 114(2), pages 629-653.
- Carmine DiNoia, 1994. "Structuring Deposit Insurance in Europe: Some Considerations and a Regulatory Game," Center for Financial Institutions Working Papers 94-31, Wharton School Center for Financial Institutions, University of Pennsylvania.
- H. Franklin Allen & Douglas Gale, .
"Innovation in Financial Services, Relationships and Risk Sharing,"
Center for Financial Institutions Working Papers
97-26, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Franklin Allen & Douglas Gale, 1999. "Innovations in Financial Services, Relationships, and Risk Sharing," Management Science, INFORMS, vol. 45(9), pages 1239-1253, September.
- Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, March.
- 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 539-60, October.
- Padoa-Schioppa, Tommaso, 1999. "EMU and Banking Supervision," International Finance, Wiley Blackwell, vol. 2(2), pages 295-308, July.
When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:411. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.