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Should Banking Supervision and Monetary Policy Tasks Be Given to Different Agencies

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  • Carmine Di Noia
  • Giorgio Di Giorgio

Abstract

A relevant and current policy debate is whether banking supervision should be assigned to the same institution (the central bank) that is responsible for monetary policy. This paper reviews the theoretical arguments advanced in favour and against the solution of having banking supervision performed by the central bank. We then provide some additional evidence on the inflation 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 than in countries where this responsibility is assigned either to another agency or to more than one agency (possibly including the central bank). Finally, we compare banks' pricing behaviour and performance in the two groups of countries. Copyright 1999 by Blackwell Publishers Ltd.
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Suggested Citation

  • Carmine Di Noia & Giorgio Di Giorgio, 1999. "Should Banking Supervision and Monetary Policy Tasks Be Given to Different Agencies," Center for Financial Institutions Working Papers 00-11, Wharton School Center for Financial Institutions, University of Pennsylvania.
  • Handle: RePEc:wop:pennin:00-11
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    References listed on IDEAS

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    1. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
    2. 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.
    3. Padoa-Schioppa, Tommaso, 1999. "EMU and Banking Supervision," International Finance, Wiley Blackwell, vol. 2(2), pages 295-308, July.
    4. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    5. 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 151-162, May.
    6. H. Franklin Allen & Douglas Gale, "undated". "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.
    7. Allen, Franklin & Santomero, Anthony M., 1997. "The theory of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1461-1485, December.
    8. Joseph G. Haubrich, 1996. "Combining bank supervision and monetary policy," Economic Commentary, Federal Reserve Bank of Cleveland, issue Nov.
    9. Franklin Allen & Douglas Gale, 1999. "Innovations in Financial Services, Relationships, and Risk Sharing," Management Science, INFORMS, vol. 45(9), pages 1239-1253, September.
    10. 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.
    11. Allen, Franklin & Gale, Douglas, 1997. "Financial Markets, Intermediaries, and Intertemporal Smoothing," Journal of Political Economy, University of Chicago Press, pages 523-546.
    12. Dirk Schoenmaker, 1992. "Institutional Separation between Supervisory and Monetary Agencies," FMG Special Papers sp52, Financial Markets Group.
    13. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, January.
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    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G2 - Financial Economics - - Financial Institutions and Services

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