Towards a new architecture for financial stability: seven principles
Luis Garicano () and
LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library
In this paper we use insights from organizational economics and financial regulation to studythe optimal architecture of supervision. We suggest that the new architecture should revolvearound the following principles: (i) banking, securities and insurance supervision should befurther integrated; (ii) macro prudential supervisory function must be in the hands of thecentral bank; (iii) the relation between macro and micro supervisors must be articulatedthrough a management by exception system involving direct authority of the macrosupervisor over enforcement and allocation of tasks; (iv) given the difficulty of measuringoutput on supervisory tasks, the systemic risk supervisor must necessarily be moreaccountable and less independent than Central Banks are on their monetary task; (v) thesupervisory agency cannot rely on high powered incentives to motivate supervisors, and mustrely on culture instead; (vi) the supervisor must limit its reliance on self regulation; and (vii)the international system should substitute the current loose, networked structure for a morecentralized and hierarchical one.
Keywords: Banks; international financial markets; systematic risk (search for similar items in EconPapers)
JEL-codes: E61 G21 (search for similar items in EconPapers)
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Journal Article: Towards a New Architecture for Financial Stability: Seven Principles (2010)
Working Paper: Towards a New Architecture for Financial Stability: Seven Principles (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:48900
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