Regulatory and Supervisory Independence and Financial Stability

Michael Taylor and Marc Quintyn

No 2002/046, IMF Working Papers from International Monetary Fund

Abstract: Despite its importance, the issue of financial sector regulatory and supervisory independence (RSI) has received only marginal attention in literature and practice. However, experience has demonstrated that improper supervisory arrangements have contributed significantly to the deepening of several recent systemic banking crises. In this paper we argue that RSI is important for financial stability for the same reasons that central bank independence is important for monetary stability. The paper lays out four key dimensions of RSI-regulatory, supervisory, institutional and budgetary-and discusses ways to achieve them. We also discuss institutional arrangements needed to make independence work in practice. The key issue in this respect is that agency independence and accountability need to go hand in hand. The paper discusses a number of accountability arrangements.

Keywords: WP; supervisory agency; agency independence; government regulation; monetary policy; reaction function; Financial Regulation; Banking Supervision; Regulatory Agencies; Central Bank Independence; government interference; independence arrangement; structural adjustment; Central bank autonomy; Bank supervision; Financial sector stability; Financial sector; Global (search for similar items in EconPapers)
Pages: 54
Date: 2002-03-01
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Citations: View citations in EconPapers (83)

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Journal Article: Regulatory and Supervisory Independence and Financial Stability (2003)
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