Supervisory Architectures and Central Banking before the Crisis Donato Masciandaro Bocconi University and SUERF

2 Before the Crisis: Reforming the Supervisory Architectures

3

Reforming Supervision: Is There Any Trend? 1) Consolidation 2) Specialization

5 Consolidation Globalization = the blurring effect : Innovation in R&S Architectures: 1) Splitting Effect between Regulation (international fora) and supervision (national fora) 2) Consolidation in Supervision BSI GLOBAL FINANCIAL MARKETS

6 Innovation: The Unified Model US GLOBAL FINANCIAL MARKETS UNIFIED SUPERVISOR

7 The Unified Model the unified (integrated) model, where a single authority supervises all the financial system in pursuing all the public goals (overall monopoly) (INNOVATIVE MODEL).

8 Consolidation: The Peaks Model SSDS GLOBAL FINANCIAL MARKETS STABILITY SUPERVISORCONDUCT OF BUSINESS (DISCLOSURE) SUPERVISOR

9 The Peaks Model the horizontal (peaks) model follows the difference among the public goals of regulation, and where every goal is supervised by a different authority (monopoly by function) (INNOVATIVE MODEL);

10 The State of Affairs 30% 33% 4%

11 The State of Affairs Then: 34 percent of the countries which implemented a reform adopted an innovative regime of supervision – unified or peaks regime – while the remaining 66 percent chose a “conservative” approach, i.e. maintaining the more traditional regime (silos or hybrid regime).

12 Before the Crisis: 1) from Fragmentation …

13 Before the Crisis: 1) … to Consolidation

Consolidation: Follow up Traditional (Silos) Model: Crisis Why? Financial Blurring Effect = More Effectiveness + More Efficiency Effects: New Models – Unified Model and Peaks Model – which are more consolidated

15 Specialization The “conservative” countries show a common feature, i.e. the central bank is the sole (or the main) banking supervisor in the 80 per cent of the sample (61 on 76). At the same time, the adoption of an innovative model of supervision is centred on the role of the central bank in only very few cases (5 on 26 cases,20 per cent).

Specialization Traditional Model: Central Bank as Monetary Supervisory Authority = Crisis Why? Monetary Policy Credibility needs a Specialized Central Bank

Specialization Effects: 1) Less Central Bank Involvement in Supervision 2) Governance Matters (Independence and Accountability), before for Central Banking and then for Supervision

Governance Good Governance = Ratings for Independence and Accountability Monetary Policy: Politicians, Bureaucracies and Stakeholders Supervision: Politicians, Bureaucracies, Regulated Firms and Stakeholders

Before the Crisis: Follow up In conclusion, three trends: A) Supervisory consolidation outside the central bank B) Specialisation C) Good Governance: Independence, Accountability arm’s length in politicians- supervisors – regulated firms relationships NOTE: No distinction between macro and micro supervision