The Fear of Freedom

Abstract

Compared with the case of central bank independence, independence for financial sector supervisors remains more controversial. This paper analyzes changes in independence and accountability arrangements in a set of 32 countries that overhauled their legal and/or institutional frameworks for supervision in recent years. Despite improvements, there is strong evidence that the endorsement of independence remains half-hearted, which shows itself through either overcompensation on the accountability side, or resort to political control mechanisms. The latter could potentially undermine the agency''s credibility. The results indicate that policymakers still need to be persuaded of the long-term benefits of independence for financial sector soundness, and of the potential for a virtuous interaction between independence and accountability, if the arrangements are well-designed.Bank supervision;Financial sector;banking, banking supervision, supervisory agency, central banking, bank independence, financial sector supervisors, financial regulation, supervisory agencies, bank of england, bank indonesia, banking crisis, financial sector supervision, supervisory process, financial supervision, banking system, good faith, financial accountability, bankers, internal audit, bank supervisors, supervisory authority, prudential regulation, banking crises, international standards, supervisory frameworks, banking publications, banking regulation, bank of canada, bank transparency, institutional underpinnings, integrated supervision, supervisory framework, monetary authority, bank laws, bank supervisor, bank insolvency, bank data, deposit insurance, prudential bank supervision, securities regulators, regulatory authority, banking law, recapitalization, market infrastructure, securities markets, bank for international settlements, bank failures, supervisory arrangements, connected lending, integrated regulation, banking industry, banking policy, judicial authority, insurance supervisors