Inside and outside the central bank: independence and accountability in financial supervision: trends, and determinants

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

Independence and Accountability in Supervision: Comparing Central Banks with Financial Authorities

Unlike the monetary policy function – nowadays, invariably the core function of a central bank – the financial supervisory function is being performed by a variety of institutions for whom there is less consensus about the governance model than for central banks. This chapter sheds light on recent trends in, and determinants of, financial supervisory governance, with special attention to the position of the central bank. We first identify similarities and differences in the theoretical approaches to the two key features of governance for central banks and supervisors – independence and accountability. We then disentangle empirically the institutional differences between supervisory regimes governed by central banks and other institutional arrangements. The analysis of the determinants of independence and accountability arrangements for supervisors indicates that (1) the quality of public sector governance plays a decisive role in establishing accountability arrangements, more than independence arrangements; (2) politicians' decisions regarding the degree of independence and accountability seem to be driven by different sets of considerations; and (3) the likelihood for establishing governance arrangements suitable for the supervisory task seems to be higher when the supervisor is located outside the central ban

Independence and Accountability in Supervision: Comparing Central Banks with Financial Authorities

Unlike the monetary policy function which is nowadays invariably the core function of a central bank, the supervisory function is being performed by a variety of institutions for whom there is less consensus about the governance model than for central banks as monetary policy agents. This paper analyzes empirically recent trends in, and determinants of, financial supervisory governance, with special attention to the role of the central bank as supervisor. As its starting point, the paper identifies the similarities and differences between our analysis and the central bank literature in defining the two key features of a good governance: independence and accountability. Then we calculate the levels of supervisory independence and accountability in 55 countries, disentangling the institutional differences between supervisory regimes governed by central banks from those in which a different authority is in charge of supervision. Finally, the empirical analysis of the determinants of emerging independence and accountability arrangements indicates that the quality of public sector governance plays a decisive role in establishing accountability arrangements, more than independence arrangements. Politicians’ decisions on the degree of independence and accountability of their supervisors seem to be driven by a different set of considerations. Only polity is present in both, meaning that the more mature a democracy is, the more likely it is that higher degrees of independence and accountability will be granted. Accountability is additionally driven by crisis experiences, while independence is influenced by a kind of bandwagon effect. The results also show that the likelihood for establishing governance arrangements suitable for the supervisory task seems to be higher when the supervisor is located outside the central bank