TWIN PEAKS AND CENTRAL BANKS: ECONOMICS, POLITICAL ECONOMY AND COMPARATIVE ANALYSIS

Donato Masciandaro () and Davide Romelli

No 1768, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: One of the fundamental issue in implementing the twin peaks regime is deciding where the prudential supervisor should be housed, given that so far three options has been explored, i.e. the prudential supervisor could be outside the central bank, or be a subsidiary of the central bank, or be completely inside the central bank. In other words the key question is to define the central bank involvement in the twin peaks model. The aim of the chapter is twofold: first of all we offer a systematic review of the economics and politics of the central bank involvement in a twin peak regime. Therefore and secondly we analyse the central bank position in the countries that already adopted the twin peak model, in order to better understand how the general theoretical and empirical results already obtained in exploring the central bank involvement in supervision can be applied in analysing the actual twin peaks regimes. Analysing the establishment of the twin peaks regime in Australia, Belgium, the Netherlands, New Zealand and United Kingdom it has been confirmed the heterogeneity of the central bank involvement as prudential supervisor, and on average that two drivers seems to be relevant in motivating the incumbent policymakers in reforming their supervisory settings: the necessity to address and fix the consequences of a systemic crisis (crisis driver); the opportunity to implement a supervisory change when the share of peer countries undertaking reforms is higher (bandwagon driver). On this respect, the true outlier seems to the Australian case, where the relevance of the two drivers is completely absent. The inertia effect – i.e. lagged reform due to the risks in implementing it - seems to evident only in the UK case.

Keywords: Twin Peaks Model; Prudential Supervision; Central Banking; Monetary Policy; Australia; Belgium; Netherlands; New Zealand; United Kingdom) (search for similar items in EconPapers)
JEL-codes: E58 E63 G18 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2017
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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