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Designing institutions for financial stability: Regulation and supervision by objective for the Euro area

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  • Giorgio di Giorgio
  • Carmine Di Noia

Abstract

In this paper, we discuss pros and cons of different models for financial market regulation and supervision and we present a proposal for the re-organisation of regulatory and supervisory agencies in the Euro Area. Our arguments are consistent with both new theories and effective behaviour of financial intermediaries in industrialized countries. Our proposed architecture for financial market regulation is based on the assignment of different objectives or "finalities" to different authorities, both at the domestic and the European level. According to this perspective, the three objectives of supervision - microeconomic stability, investor protection and proper behaviour, efficiency and competition - should be assigned to three distinct European authorities, each one at the centre of a European system of financial regulators and supervisors specialized in overseeing the entire financial market with respect to a single regulatory objective and regardless of the subjective nature of the intermediaries. Each system should be structured and organized similarly to the European System of Central Banks and work in connection with the central bank which would remain the institution responsible for price and macroeconomic stability. We suggest a plausible path to build our 4-peak regulatory architecture in the Euro area.

Suggested Citation

  • Giorgio di Giorgio & Carmine Di Noia, 2000. "Designing institutions for financial stability: Regulation and supervision by objective for the Euro area," Economics Working Papers 517, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:517
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    References listed on IDEAS

    as
    1. Carmine Di Noia & Giorgio Di Giorgio, 1999. "Should Banking Supervision and Monetary Policy Tasks be Given to Different Agencies?," International Finance, Wiley Blackwell, vol. 2(3), pages 361-378, November.
    2. Lawrence J. White, "undated". "Technological Change, Financial Innovation, and Financial Regulation: The Challenges for Public Policy," Center for Financial Institutions Working Papers 97-33, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Tommaso Padoa‐Schioppa, 1999. "EMU and Banking Supervision," International Finance, Wiley Blackwell, vol. 2(2), pages 295-308, July.
    4. Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
    5. Allen, Franklin & Santomero, Anthony M., 1997. "The theory of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1461-1485, December.
    6. Lawrence J. White, 1996. "International Regulation of Securities Markets: Competition or Harmonization?," NBER Chapters, in: The Industrial Organization and Regulation of the Securities Industry, pages 207-242, National Bureau of Economic Research, Inc.
    7. Charles A. E. Goodhart, 1996. "An Incentive Structure for Financial Regulation," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 132(IV), pages 637-648, December.
    8. Marcello De Cecco, 1999. "The Lender of Last Resort," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 28(1), pages 1-14, February.
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    10. repec:bla:intfin:v:2:y:1999:i:3:p:361-78 is not listed on IDEAS
    11. Franks, Julian R. & Schaefer, Stephen M. & Staunton, Michael D., 1997. "The direct and compliance costs of financial regulation," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1547-1572, December.
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    Cited by:

    1. D. Heremans, 2002. "Systemic Risks and Financial Consolidation in the E.U. Challenges for Prudential Policy," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business (FEB), Review of Business and Economic Literature, vol. 0(3), pages 417-442.

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    More about this item

    Keywords

    Financial regulation; supervisory authorities; european financial integration;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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