Placing Bank Supervision in the Central Bank
Although keeping bank supervision independent from macroprudential supervision may ensure more checks and balances, placing bank supervision in the central bank could exploit synergies with macroprudential supervision. This paper studies whether placing microprudential supervision of banks, typically the systemic part of the financial system, under the same roof as financial stability policy, typically entrusted to the central bank, can improve financial stability. Specifically, the paper analyzes whether having bank supervision in the central bank mitigated the likelihood of banking crises during 2007–12. The analysis conditions on crisis indicators commonly found in the early-warning models of banking crises, the quality of microprudential supervision, and the quality of macroprudential supervision. The authors find that countries with deeper financial markets and those undergoing rapid financial deepening can better foster financial stability when they put bank supervision in the central bank.
Summary: | Although keeping bank supervision
independent from macroprudential supervision may ensure more
checks and balances, placing bank supervision in the central
bank could exploit synergies with macroprudential
supervision. This paper studies whether placing
microprudential supervision of banks, typically the systemic
part of the financial system, under the same roof as
financial stability policy, typically entrusted to the
central bank, can improve financial stability. Specifically,
the paper analyzes whether having bank supervision in the
central bank mitigated the likelihood of banking crises
during 2007–12. The analysis conditions on crisis indicators
commonly found in the early-warning models of banking
crises, the quality of microprudential supervision, and the
quality of macroprudential supervision. The authors find
that countries with deeper financial markets and those
undergoing rapid financial deepening can better foster
financial stability when they put bank supervision in the
central bank. |
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