Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/48900.html
   My bibliography  Save this paper

Towards a new architecture for financial stability: seven principles

Author

Listed:
  • Garicano, Luis
  • Lastra, Rosa
Abstract
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.

Suggested Citation

  • Garicano, Luis & Lastra, Rosa, 2010. "Towards a new architecture for financial stability: seven principles," LSE Research Online Documents on Economics 48900, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:48900
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/48900/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Carmine Di Noia & Giorgio Di Giorgio, 1999. "Should Banking Supervision and Monetary Policy Tasks be Given to Different Agencies?," International Finance, Wiley Blackwell, vol. 2(3), pages 361-378, November.
    2. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    3. Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, 1999. "Is Bank Supervision Central to Central Banking?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 629-653.
    4. Charles A. E. Goodhart, 1995. "The Central Bank and the Financial System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262071673, April.
    5. Crémer, Jacques & Garicano, Luis & Prat, Andrea, 2003. "Codes in Organizations," IDEI Working Papers 172, Institut d'Économie Industrielle (IDEI), Toulouse, revised Feb 2005.
    6. Skaperdas, Stergios, 1992. "Cooperation, Conflict, and Power in the Absence of Property Rights," American Economic Review, American Economic Association, vol. 82(4), pages 720-739, September.
    7. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 921-955.
    8. Paul H. Kupiec & A. Patricia White, 1996. "Regulatory competition and the efficiency of alternative derivative product margining systems," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(8), pages 943-968, December.
    9. Charles A. E. Goodhart, 1995. "Price Stability and Financial Fragility," Palgrave Macmillan Books, in: Kuniho Sawamoto & Zenta Nakajima & Hiroo Taguchi (ed.), Financial Stability in a Changing Environment, chapter 10, pages 439-509, Palgrave Macmillan.
    10. C. A. E. Goodhart, 1995. "The Central Bank and the Financial System," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-37915-2, March.
    11. Roberta Romano, 2001. "The Need for Competition in International Securities Regulation," Yale School of Management Working Papers ysm214, Yale School of Management, revised 01 Sep 2001.
    12. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-727, September.
    13. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    14. George A. Akerlof & Rachel E. Kranton, 2005. "Identity and the Economics of Organizations," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 9-32, Winter.
    15. Roger Ferguson, 1999. "Alternative Approaches to Financial Supervision and Regulation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 16(2), pages 297-303, December.
    16. Edward J. Kane, 1984. "Regulatory Structure in Futures Markets: Jurisdictional Competition Among the SEC, the CFTC, and Other Agencies," NBER Working Papers 1331, National Bureau of Economic Research, Inc.
    17. George Baker & Robert Gibbons & Kevin J. Murphy, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1125-1156.
    18. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-479, June.
    19. Feldman Ron J. & Kim Jan & Miller Preston J. & Schmidt Jason E., 2003. "Are Banking Supervisory Data Useful for Macroeconomic Forecasts?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-24, February.
    20. Roberta Romano, "undated". "The Need for Competition in International Securities Regulation," Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series yale_lepp-1015, Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy.
    21. Joseph G. Haubrich, 1996. "Combining bank supervision and monetary policy," Economic Commentary, Federal Reserve Bank of Cleveland, issue Nov.
    22. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
    23. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
    24. C. A. E. Goodhart, 1995. "Price Stability and Financial Fragility (1995)," Palgrave Macmillan Books, in: The Central Bank and the Financial System, chapter 14, pages 263-302, Palgrave Macmillan.
    25. Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-560, October.
    26. Lastra, Rosa Maria, 2006. "Legal Foundations of International Monetary Stability," OUP Catalogue, Oxford University Press, number 9780199269341.
    27. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-991, September.
    28. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
    29. repec:bla:intfin:v:2:y:1999:i:3:p:361-78 is not listed on IDEAS
    30. Kane, Edward J, 1996. "De Jure Interstate Banking: Why Only Now?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 141-161, May.
    31. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
    32. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gaganis, Chrysovalantis & Pasiouras, Fotios & Wohlschlegel, Ansgar, 2021. "Allocating supervisory responsibilities to central bankers: Does national culture matter?," International Review of Law and Economics, Elsevier, vol. 67(C).
    2. Alessandro Giustiniani & John Thornton, 2011. "Post‐crisis financial reform: where do we stand?," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 19(4), pages 323-336, November.
    3. Vasile Cocriş & Bogdan Căpraru, 2011. "Financial Supervision Structure In Romania. A Comparative Approach," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(13), pages 1-23.
    4. Diana Lima & Ioannis Lazopoulos & Vasco Gabriel, 2016. "The Effect of Financial Regulation Mandate on Inflation Bias: A Dynamic Panel Approach," School of Economics Discussion Papers 0616, School of Economics, University of Surrey.
    5. Meier, Samira & Rodriguez Gonzalez, Miguel & Kunze, Frederik, 2021. "The global financial crisis, the EMU sovereign debt crisis and international financial regulation: lessons from a systematic literature review," International Review of Law and Economics, Elsevier, vol. 65(C).
    6. Silva, Walmir & Kimura, Herbert & Sobreiro, Vinicius Amorim, 2017. "An analysis of the literature on systemic financial risk: A survey," Journal of Financial Stability, Elsevier, vol. 28(C), pages 91-114.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luis Garicano & Richard A. Posner, 2005. "Intelligence Failures: An Organizational Economics Perspective," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 151-170, Fall.
    2. Vasile Cocriş & Bogdan Căpraru, 2011. "Financial Supervision Structure In Romania. A Comparative Approach," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(13), pages 1-23.
    3. Edward P. Lazear & Paul Oyer, 2012. "Personnel Economics [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    4. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, April.
    5. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    6. Michael Waldman, 2012. "Theory and Evidence in Internal LaborMarkets [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    7. Franck, Raphaël & Krausz, Miriam, 2008. "Why separate monetary policy from banking supervision?," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 388-411, September.
    8. Eduard Marinov, 2016. "The 2016 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 97-149.
    9. Bengt Holmström, 2017. "Pay for Performance and Beyond," American Economic Review, American Economic Association, vol. 107(7), pages 1753-1777, July.
    10. Carmine Di Noia & Giorgio Di Giorgio, 1999. "Should Banking Supervision and Monetary Policy Tasks be Given to Different Agencies?," International Finance, Wiley Blackwell, vol. 2(3), pages 361-378, November.
    11. Robert Gibbons, 2010. "Inside Organizations: Pricing, Politics, and Path Dependence," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 337-365, September.
    12. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 19, pages 1697-1767, Elsevier.
    13. Robert Gibbons, 1998. "Incentives in Organizations," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 115-132, Fall.
    14. Garicano, Luis & Palacios-Huerta, Ignacio, 2005. "Sabotage in Tournaments: Making the Beautiful Game a Bit Less Beautiful," CEPR Discussion Papers 5231, C.E.P.R. Discussion Papers.
    15. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
    16. Rebitzer, James B. & Taylor, Lowell J., 2011. "Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 8, pages 701-772, Elsevier.
    17. James R. Barth & Luis G. Dopico & Daniel E. Nolle & James A. Wilcox, 2002. "Bank Safety and Soundness and the Structure of Bank Supervision: A Cross‐Country Analysis," International Review of Finance, International Review of Finance Ltd., vol. 3(3‐4), pages 163-188, September.
    18. Ioannidou, Vasso P., 2005. "Does monetary policy affect the central bank's role in bank supervision?," Journal of Financial Intermediation, Elsevier, vol. 14(1), pages 58-85, January.
    19. Friedrich Heinemann & Martin Schüler, 2004. "A Stiglerian View on Banking Supervision," Public Choice, Springer, vol. 121(1), pages 99-130, October.
    20. Committee, Nobel Prize, 2016. "Oliver Hart and Bengt Holmström: Contract Theory," Nobel Prize in Economics documents 2016-1, Nobel Prize Committee.
    21. Heinemann, Friedrich & Schüler, Martin, 2002. "A Stigler View on Banking Supervision," ZEW Discussion Papers 02-66, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    Keywords

    Banks; international financial markets; systematic risk;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:48900. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.