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Donato Masciandaro - One of the best experts on this subject based on the ideXlab platform.
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the governance of Financial Supervision recent developments
Journal of Economic Surveys, 2016Co-Authors: Donato Masciandaro, Marc QuintynAbstract:This paper examines the evolution of Financial Supervision as a policy tool over the last three decades, with a focus on the issues raised by the Global Crisis. It considers a sample of advanced and emerging economies to discuss the four main questions debated in the literature, and addressed in the economic policy arena: the architecture of Supervision, the role of the central bank as supervisor, the governance of Supervision, and Financial Supervision vs. the internationalization of finance. Our survey finds that, on each of these issues, theory and practice do not offer clear‐cut answers and unambiguous optimal solutions. At the same time, the most promising approach is to tackle Financial Supervision as a principal‐agent problem, where economics and political economy approaches must be used in combination to improve both positive and normative analyses of supervisory governance.
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ups and downs of central bank independence from the great inflation to the great recession theory institutions and empirics
Financial History Review, 2015Co-Authors: Donato Masciandaro, Davide RomelliAbstract:This paper analyzes the pillar of modern central bank governance, i.e. central bank independence, highlighting three contributions. First, we provide a systematic review of the economics of central bank independence. Second, using a principal agent model we design a political economy framework, which explains how politicians can shape central bank governance in addressing macroeconomic shocks, taking into account both the wishes of the citizens and their own personal interests. This framework is then used to interpret the evolution of central bank independence from the Great Inflation throughout the Great Moderation i.e. from the seventies to the first decade of the twenty-first century and to the Great Recession during which recent reforms have shaken the design of the central banks by increasing their involvement in banking and Financial Supervision. Finally, we provide empirical evidence supporting this evolution of central bank independence using recently developed indices of dynamic central bank independence.
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determinants of Financial Supervision regimes markets institutions politics law or geography
Chapters, 2012Co-Authors: Donato MasciandaroAbstract:This paper assesses the determinants of the recent wave of Financial Supervision reforms, reviewing six different views concerning the determinants of Financial Supervision architectures: economic view, market view, law view, political view, geography view and institutional view. The empirical tests provide first support for this view: in a setting characterized by a central bank traditionally less involved in Supervision a unified model of Supervision seems to be more likely to occur. The role of central bank involvement in Supervision still holds when its level of monetary independence is taking in account. Furthermore, the probability that a country will move toward a unified model is higher: the smaller the overall size of the economy; when the legal framework is characterized by German and Scandinavian roots. Therefore, also the economic size view and the law view matter.
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the economic crisis did Financial Supervision matter
Research Papers in Economics, 2011Co-Authors: Marc Quintyn, Rosaria Vega Pansini, Donato MasciandaroAbstract:The Asian Financial crisis marked the beginning of worldwide efforts to improve the effectiveness of Financial Supervision. However, the crisis that started in 2007?08 was a crude awakening: several of these improvements seemed unable to avoid or mitigate the crisis. This paper brings the first systematic analysis of the role of two of these efforts - modifications in the architecture of Financial Supervision and in supervisory governance - and concludes that they were negatively correlated with economic resilience. Using the emerging distinction between macro- and micro-prudential Supervision, we explore to what extent two separate institutions would allow for more checks and balances to improve supervisory governance and, thus, reduce the probability of supervisory failure.
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politicians and Financial Supervision unification outside the central bank why do they do it
Journal of Financial Stability, 2009Co-Authors: Donato MasciandaroAbstract:Abstract An increasing number of countries show a trend towards a certain degree of consolidation of powers in Financial Supervision, which has resulted in the establishment of unified regulators, that are different from the national central banks. By contrast a high involvement of the central bank in Supervision seems to be correlated with a multi-authorities regime (central bank fragmentation effect). This paper, using a simple application of a general common agency game, sheds light on which conditions the politicians prefer when implementing an unified sector Supervision outside the central bank. From a theoretical point of view the quality of public sector governance plays a crucial role in determining the Supervision unification. Focusing on the behaviour of the “good” policymaker (helping hand type), it will prefer a unified Financial authority that is different from the central bank if the correspondent welfare gains-linked to at least one of the three effects: moral hazard, conflict of interest, bureaucracy—are considered higher respect to the information losses. The “bad” policymaker (grabbing hand type) will choose the single Financial authority if the Financial industry likes it, and the central bank is not a captured one. On the other hand, the paper tests the model, confirming the robustness of the institutional position of the central bank in explaining the recent trend in Supervision consolidation, with an empirical analysis performed with ordered functions on an updated dataset.
Marc Quintyn - One of the best experts on this subject based on the ideXlab platform.
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the governance of Financial Supervision recent developments
Journal of Economic Surveys, 2016Co-Authors: Donato Masciandaro, Marc QuintynAbstract:This paper examines the evolution of Financial Supervision as a policy tool over the last three decades, with a focus on the issues raised by the Global Crisis. It considers a sample of advanced and emerging economies to discuss the four main questions debated in the literature, and addressed in the economic policy arena: the architecture of Supervision, the role of the central bank as supervisor, the governance of Supervision, and Financial Supervision vs. the internationalization of finance. Our survey finds that, on each of these issues, theory and practice do not offer clear‐cut answers and unambiguous optimal solutions. At the same time, the most promising approach is to tackle Financial Supervision as a principal‐agent problem, where economics and political economy approaches must be used in combination to improve both positive and normative analyses of supervisory governance.
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the economic crisis did Financial Supervision matter
Research Papers in Economics, 2011Co-Authors: Marc Quintyn, Rosaria Vega Pansini, Donato MasciandaroAbstract:The Asian Financial crisis marked the beginning of worldwide efforts to improve the effectiveness of Financial Supervision. However, the crisis that started in 2007?08 was a crude awakening: several of these improvements seemed unable to avoid or mitigate the crisis. This paper brings the first systematic analysis of the role of two of these efforts - modifications in the architecture of Financial Supervision and in supervisory governance - and concludes that they were negatively correlated with economic resilience. Using the emerging distinction between macro- and micro-prudential Supervision, we explore to what extent two separate institutions would allow for more checks and balances to improve supervisory governance and, thus, reduce the probability of supervisory failure.
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Financial Supervision in the eu is there convergence in the national architectures
Journal of Financial Regulation and Compliance, 2009Co-Authors: Donato Masciandaro, Maria J Nieto, Marc QuintynAbstract:Purpose – The purpose of this paper is to review current trends in reforms of the supervisory architecture in European Union (EU) countries.Design/methodology/approach – Against the background of the debate on the advisability of further centralizing prudential Supervision in the EU this paper develops a study of applied institutional economics, analyzing the Financial supervisory architecture of each of the 27 EU countries and assesses their degree of institutional convergence. The paper investigate whether the recent wave of reforms are leading to a convergence of the national architectures.Findings – While the degree of supervisory convergence is low, there is no single superior model of bank Supervision.Originality/value – The paper contributes to the debate on convergence of supervisory architectures in EU member countries.
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inside and outside the central bank independence and accountability in Financial Supervision trends and determinants
European Journal of Political Economy, 2008Co-Authors: Donato Masciandaro, Marc Quintyn, Michael W TaylorAbstract:Abstract This paper analyzes recent trends in, and determinants of, Financial supervisory governance inside and outside central banks. We first review the case for supervisory independence and accountability in order to frame the econometric work on their determinants. We then calculate the levels of supervisory independence and accountability in 55 countries, disentangling similarities and differences among central banks and pure Financial supervisors. The empirical analysis of the determinants indicates that the quality of public sector governance plays a decisive role in establishing accountability arrangements, more than independence arrangements. It also shows that decisions regarding levels of independence and accountability are not well-connected. The results also show that the likelihood for establishing governance arrangements suitable for Supervision is higher when the supervisor is located outside the central bank.
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helping hand or grabbing hand politicians Supervision regime Financial structure and market view
The North American Journal of Economics and Finance, 2008Co-Authors: Donato Masciandaro, Marc QuintynAbstract:Abstract Almost all the literature on the evolution of the Financial Supervision architecture stresses the importance of Financial market characteristics in determining the recent trend toward more unification. But in the real world it is not always clear to what extent market features matter. We present two complementary approaches to gain insights in the above relationship, focusing on the political cost and benefit analysis. First, a cross-country study tests two alternative theories—the helping hand and the grabbing hand view of government—to determine the impact of the market structure on the supervisory setting. Our evidence seems more consistent with the grabbing hand view, considering the degree of banking concentration a proxy of the capture risk and presuming the market demonstrates a preference for consolidation of supervisory powers. Second, the results of a survey among Financial CEOs in Italy confirm a market preference for a more consolidated supervisory regime but reveal only weak consistency between the views of the policymakers and those of the market operators.
Taylor Michael Fleming Alex - One of the best experts on this subject based on the ideXlab platform.
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integrated Financial Supervision lessons of northern european experience
Social Science Research Network, 1999Co-Authors: Taylor Michael Fleming AlexAbstract:In the past, Financial Supervision tended to be organized around specialist agencies for the banking, securities, and insurance sectors. In recent years, several countries have moved toward integrating these different supervisory functions in a single agency. Drawing on Northern European experience - where three Scandinavian countries have practiced integrated Supervision for the past 10 years - Taylor and Fleming address three policy-related issues associated with the integrated model: - Under what conditions should (or should not) a country consider moving toward an integrated model of Financial Supervision? Clearly, for a small transition or developing economy, or an economy with a small Financial sector, the economies of scale from establishing an integrated agency outweigh the costs of moving to such a model. A strong case can also be made for an integrated approach in a Financial sector dominated by banks, with little role for capital markets or a highly integrated Financial sector. - How should an integrated agency be structured, organized, and managed? There is no single obviously correct organizational structure, and existing agencies are experimenting with a variety of forms. An institutionally based structure has the virtue of simplicity and can be implemented fairly quickly, but tends to preserve the cultures and identities of the predecessor agencies more than is optimal. Whatever the structure, integrated Supervision requires active management to secure the potential benefits that the approach offers. - How should the integration process be implemented? While the decision to move to an integrated agency must be carefully thought through in the context of the country concerned, the more difficult part is implementation, which must be sensitively managed. Once the decision has been made, implementation should take place as quickly as possible. A well-conceived change management process should aim to overcome the cultural barriers associated with the previous fragmented structure. Taylor and Fleming's review of Northern European experience with integration of Financial Supervision raises a range of questions relevant to developing and transition economies, which they discuss. This paper - a product of the Private and Financial Sectors Development Unit, Europe and Central Asia Region - is part of a larger effort in the region to assist transition economies in strengthening the legal and regulatory framework for their Financial sectors. The authors may be contacted at mtaylor@imf.org or afleming@worldbank.org.
Dirk Schoenmaker - One of the best experts on this subject based on the ideXlab platform.
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Financial Supervision in the eu
Handbook of Safeguarding Global Financial Stability, 2012Co-Authors: Dirk SchoenmakerAbstract:The new European Financial supervisory framework started at the beginning of 2011. Three new European Supervisory Authorities (the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority) are created to strengthen Financial Supervision at the EU level. These new European Supervisory Authorities (ESAs) have to work in tandem with the national Financial supervisors, who remain responsible for day-to-day Financial Supervision. While the new European framework is still based on the sectoral model, several EU Member States are adopting the twin peaks model (with two separate supervisors for micro-prudential Supervision and conduct of business) or the integrated model (with one single supervisor) in response to the cross-sector developments of Financial markets and institutions. To foster Financial stability, the new ESAs participate in the newly established European Systemic Risk Board at the ECB. This new body is responsible for macro-prudential Supervision at the EU level.
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burden sharing in a banking crisis in europe
Sveriges Riksbank Economic Review, 2006Co-Authors: Charles Goodhart, Dirk SchoenmakerAbstract:Pan-European banks are starting to emerge, while arrangements for Financial Supervision and stability are still nationally rooted. This raises the issue who should bear the burden of any proposed recapitalisation should failures occur in large cross-border banks. A recapitalisation is efficient if the social benefits (preserving systemic stability) exceed the cost of recapitalisation. Using the multi-country model of Freixas (2003), it is shown that ex post negotiations on burden sharing lead to an underprovision of recapitalisations.We explore different ex ante burden sharing mechanisms. The first is a general scheme financed from the seigniorage of participating central banks (generic burden sharing). The second relates the burden to the location of the assets of the bank to be recapitalised (specific burden sharing). As a country's benefits and that country's contribution to the costs are better aligned in the specific scheme, the latter is better able to overcome the co-ordination failure. Finally, decision-making procedures for administering an ex ante burden sharing mechanism are required.Download Paper
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Financial Supervision in an integrating europe measuring cross border externalities
International Finance, 2005Co-Authors: Dirk Schoenmaker, Sander OosterlooAbstract:Against the backdrop of European integration, the debate on the need for European arrangements for Financial Supervision and stability is intensifying in the literature as well as in the policy arena. While there is a consensus that the need for European arrangements ultimately depends on the intensity of cross-border spillover effects or externalities within the European Union (EU), there has been no attempt to measure these cross-border externalities. The aim of this paper is to fill this gap. A new data set on cross-border penetration (as a proxy for cross-border externalities) of 30 large EU banking groups has been collected. Although a home country bias still exists, the data indicate that the number of groups that have the potential to pose significant cross-border externalities within the EU context is substantial and increasing. Within a fouryear period (2000‐03), we find a statistically significant upward trend of emerging European banking groups. Policymakers therefore face the
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Financial Supervision in an integrating europe measuring cross border externalities
Social Science Research Network, 2005Co-Authors: Sander Oosterloo, Dirk SchoenmakerAbstract:Against the backdrop of European integration, the debate on the need for European arrangements for Financial Supervision and stability is intensifying in the literature as well as in the policy arena. While there is a consensus that the need for European arrangements ultimately depends on the intensity of cross-border spillover effects or externalities within the European Union (EU), there has been no attempt to measure these cross-border externalities. The aim of this paper is to fill this gap. A new data set on cross-border penetration (as a proxy for cross-border externalities) of 30 large EU banking groups has been collected. Although a home country bias still exists, the data indicate that the number of groups that have the potential to pose significant cross-border externalities within the EU context is substantial and increasing. Within a four year period (2000–03), we find a statistically significant upward trend of emerging European banking groups. Policymakers therefore face the challenge of designing European structures for Financial Supervision and stability to deal effectively with these emerging European banking groups.
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Financial Supervision in an integrating europe measuring cross border externalities
International Finance, 2005Co-Authors: Dirk Schoenmaker, Sander OosterlooAbstract:Against the backdrop of European integration, the debate on the need for European arrangements for Financial Supervision and stability is intensifying in the literature as well as in the policy arena. While there is a consensus that the need for European arrangements ultimately depends on the intensity of cross-border spillover effects or externalities within the European Union (EU), there has been no attempt to measure these cross-border externalities. The aim of this paper is to fill this gap. A new data set on cross-border penetration (as a proxy for cross-border externalities) of 30 large EU banking groups has been collected. Although a home country bias still exists, the data indicate that the number of groups that have the potential to pose significant cross-border externalities within the EU context is substantial and increasing. Within a four-year period (2000-03), we find a statistically significant upward trend of emerging European banking groups. Policymakers therefore face the challenge of designing European structures for Financial Supervision and stability to deal effectively with these emerging European banking groups. Copyright Blackwell Publishing Ltd. 2005
Richard Podpiera - One of the best experts on this subject based on the ideXlab platform.
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integrated Financial Supervision which model
The North American Journal of Economics and Finance, 2008Co-Authors: Martin Cihak, Richard PodpieraAbstract:Abstract Integrated agencies supervising banks, nonbank Financial institutions, and securities markets have been gaining popularity around the globe. Using a unique data set on compliance with international standards in 84 countries, we find that greater supervisory integration is associated with higher quality of insurance and securities Supervision and greater consistency of Supervision across sectors. Within the different forms of integration, we find some support for the “twin peaks” model that integrates Supervision across sectors but separates business conduct and prudential Supervision. We also find that whether Supervision is located inside or outside the central bank has no significant relation to supervisory quality.
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is one watchdog better than three international experience with integrated Financial sector Supervision
Is One Watchdog Better Than Three? International Experience with Integrated Financial Sector Supervision, 2006Co-Authors: Martin Cihak, Richard PodpieraAbstract:The last twenty years have been characterized by increasing integration of the banking, securities and insurance markets, as well as their respective products and instruments. Largely in response to the integration in the markets, there has been a substantial shift from the traditional sector-by-sector approach to Supervision toward integrated Financial Supervision. This paper presents the first comprehensive, cross-country analysis of the emerging experience with integrated Financial Supervision. We survey the theoretical arguments for and against the integrated supervisory model and use empirical data to assess the validity of some of these arguments. In particular, we analyze how the quality of Supervision (measured by compliance with international standards and codes) in countries with integrated supervisors compares with that in other countries. We also use data on staffing to assess any potential cost savings associated with integrated Supervision. So, is one watchdog better than two, three, or more? Although there are a number of theoretical arguments for and against the integrated model, our empirical results suggest that (i) integrated Supervision is generally associated with higher quality and consistency of Supervision across supervised institutions, even though a large part of the difference is explained by other variables, mainly income level; and (ii) integrated Supervision is not associated with a significant reduction in supervisory staff.