Monetary Policy and Banking Supervision: Still at Arm's Length? A Comparative Analysis

By Masciandaro, Donato | The European Journal of Comparative Economics, December 2012 | Go to article overview

Monetary Policy and Banking Supervision: Still at Arm's Length? A Comparative Analysis


Masciandaro, Donato, The European Journal of Comparative Economics


1. Introduction

In terms of central banking the most interesting innovation to have taken place in the two decades preceding the 2008 Crisis was the progressive split between responsibility for monetary policy and responsibility for banking supervision (1). By the early 2000s an increasing number of countries had adopted a well-defined central bank framework, whereby the monetary agency becomes increasingly specialized in achieving monetary policy goals, and consequently its traditional responsibilities in pursuing financial stability seem to be progressively less important. The fundamental effect was that central bank involvement in supervision (hereafter CBIS) generally decreased.

But now a significant number of reforms are currently taking place concerning the central bank's role in the structure of supervision as a consequence of the financial meltdown (hereafter the Crisis).

In 2010, the US legislature passed the Dodd-Frank Act, rethinking of the role of the Fed as part of the general overhaul of financial supervision. Even if during the discussion of the bill US lawmakers debated the possibility of restricting some of the Fed's regulatory powers, as well as increasing political control over the central bank, the Dodd-Frank Act actually ended up increasing the responsibilities of the Fed as prudential supervisor (2). In Malaysia, the 2009 Central Bank Law provided for greater involvement in supervision by the central bank (3). In the current evolution of the Basel Capital Accord, the activation of countercyclical prudential measures is being put in the hands of central banks (4).

In Europe, policymakers are moving to finalize reforms concerning the involvement of central banks in supervision both at the regional and national levels. In 2010, the European Systemic Risk Board (ESRC) was established to provide macro-prudential supervision, and the new institution has been dominated by the European Central Bank (ECB) (5). On June 2012 the heads of state and government of the Eurozone declared that the European Commission would have to present proposals in order to establish an effective single supervisory framework, one which should involve the ECB.

Concerning individual EU members, in 2011, with the new Banking Act, the German government dismantled its unified financial supervisor (BAFIN) in favor of the Bundesbank, which is now the main banking supervisor. In 2010, the UK government put the key prudential functions of the Financial Services Authority (FSA) within the purview of the Bank of England. In 2010, the Irish Financial Services Regulatory Authority was legally merged with the central bank. Further, an analysis of the reforms undertaken in Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Poland and Slovakia reveals that the trend towards supervisory consolidation has definitely not resulted in smaller central bank involvement (6).

In this respect, it is interesting to note that before the Crisis the central bank was the main prudential supervisor in less than half of EU countries (13 out of 27) (Figure 1). After the Crisis, with the establishment of new supervisory regimes in Belgium, France, Germany and United Kingdom (7), the central bank has now become the main prudential supervisor in more than half of them (17 out of 27) (Figure 2).

Do these episodes signal a sort of back to the future for central banking regimes, given that before the Crisis the direction of changes in supervisory structures had been characterized by the move of central banking away from supervision (8)? Therefore the main research question is: how is CBIS now moving?

This article offers two contributions, organized as follows. Section Two reviews the economics of the pros and cons of central bank's involvement in supervision, reaching the result that what really matters is the role of the policymaker with his own cost and benefit analysis. The result is used in Section Three to evaluate the evolution of the role of the central banker as supervisor in 88 countries worldwide, before and after the Crisis. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Monetary Policy and Banking Supervision: Still at Arm's Length? A Comparative Analysis
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.