Politicians, central banks, and the shape of financial supervision architectures

Author:

Dalla Pellegrina Lucia,Masciandaro Donato

Abstract

PurposeThis paper aims to investigate the role of the quality of government on financial supervisory structures in different countries.Design/methodology/approachThe objectives are pursued by means of econometric tools based on probit and multinomial logit techniques.FindingsIt is found that the quality of government plays a crucial role in determining supervision unification. “Good” policymakers (helping hand types) prefer a unified financial authority while “bad” ones (grabbing hand type) choose specialized or hybrid models depending on how powerful is the central bank.Research limitations/implicationsResearch limitations are represented by the endogenous nature of political variables with respect to the supervisory design. Suggestions for future research rely on finding adequate instrumental variables to be included in the empirical analysis in order to address causality issues.Practical implicationsThe paper follows a positive approach, explaining why different supervisory structures are observed around the world. As a consequence, it does not provide any normative implication.Originality/valueIts original contribution can be identified in the first attempt to include political preferences in determining the choice among different regimes of financial supervision.

Publisher

Emerald

Subject

Strategy and Management

Reference40 articles.

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2. Alesina, A. and Tabellini, G. (2003), “Bureaucrats or politicians? Part II: multiple policy task”, Discussion Paper No. 2009, Harvard Institute of Economic Research, Harvard University, Harvard, MA.

3. Arnone, M. and Gambini, A. (2007), “Architecture of supervisory authorities and banking supervision”, in Masciandaro, D. and Quintyn, M. (Eds), Designing Financial Supervision Institutions: Independence, Accountability and Governance, Edward Elgar, Cheltenham.

4. Barth, J.R., Caprio, G.J. and Levine, R. (2004), “Bank supervision and regulation: what works best?”, Journal of Financial Intermediation, Vol. 13, pp. 205‐48.

5. Barth, J.R., Caprio, G.J. and Levine, R. (2006), Rethinking Bank Regulation. Till Angels Govern, Cambridge University Press, Cambridge.

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