Financial governace of banking supervision

This article analyses the economics of financing banking supervision and attempts to respond to two questions: What are the most common financing practices? Can the differences in current financing practices be explained by country specific factors? We perform an empirical analysis that identifies the determinants of the financing structure of banks´ prudential supervision using a sample of 90 banking supervisors (central banks and financial authorities). We conclude that supervisors in central banks are more likely publicly funded, while financial authorities are more likely funded via a levy on the regulated banks. The financing rule is also explained by the structure of the financial systems. Public funding is more likely in bank oriented structures. Finally, the geographical factor is also significant: European bank supervisors are more oriented towards the private funding regime. In general, we do not find evidence of the role of the political factor, the size of the economy, the level of development and the legal traditio

Monetary Institutions in an Evolving World

Book review of Rosa M. Lastra\u27s Legal Foundations of International Monetary Stabilit

Towards a meaningful prudential supervision dialogue in the Euro area?

In the context of the introduction of the Single Supervisory Mechanism ( SSM) as part of the European Banking Union, the European Central Bank ( ECB) has been assigned specific supervisory tasks relating to credit institutions established primarily in the euro area. One particularly remarkable feature of this new legislation, notably when compared with the monetary policy tasks of the ECB, is the introduction of an explicit accountability framework with a particular focus on the relationship between the ECB and the European Parliament. It is this relationship, and mainly the so-called supervisory dialogue, that form the focal point of this contribution, which offers an assessment of the legal framework, as well as of the actual practice in these first years of the existence of the SSM, against a clearly defined notion of accountability. With regard to the actual practice, the contribution focuses on the exchanges between the chair of the ECB’s main decision-preparing body on SSM matters, i.e. the Supervisory Board, and the European Parliament’s Committee on Economic and Monetary Affairs

Financial Engineering and Engineering of Financial Regulation

As observed at least in last two decades, financial engineering has not only changed the way of doing business in finance world, but also has changed daily life of average citizens in the leading economies. Structured products named as weapons of mass destruction in some post-crisis comments. But it is fair to say that few people could understand the nature and risks of these instruments before the crisis. By using literature review and case study analysis, the author analyses how financial regulation and supervision have failed to understand/manage the financial engineering products during/before the global financial crisis. In this context, we discuss the measures to enhance good regulatory governance in engineered products. We conclude however engineered products have important benefits to the global economy, regulatory/supervisory structure should be improved for better firm/system wide risk management. Secondly, there are four components to improve prudential regulatory/supervisory framework of structured products. Those are, timely/effectively action to the balance sheet problems, to increase the effectiveness of the risk management, to improve independence and quality of prudential regulation/supervision and to increase accountability of supervisors.Financial engineering, structured finance, financial crisis, risk management, regulation

Designing an Integrated Financial Supervision Agency: Selected Lessons and Challenges for Indonesia

Having initiated reforms in its financial sector in late 1997, the government of Indonesia introduced a new central bank independence act in early 1999. The next task for the government of Indonesia is to devise a safety net system for the financial sector. This study draws essential lessons from the experiences of other countries to highlight a number of key challenges facing Indonesia, especially at early stages of designing its unified financial sector supervisory agency.Unified Financial Sector Supervisory Agency, Bancassurance Central Bank, Indonesia.