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Towards a new architecture for financial stability: seven principles

Garicano, Luis and Lastra, Rosa (2010) Towards a new architecture for financial stability: seven principles. CEP Discussion Papers, CEPDP0990. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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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.

Item Type: Monograph (Technical Report)
Official URL: http://cep.lse.ac.uk
Additional Information: © 2010 The Authors
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Sets: Departments > Economics
Departments > Management
Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Research centres and groups > Managerial Economics and Strategy Group
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: CEPDP0990
Date Deposited: 28 Feb 2013 12:31
URL: http://eprints.lse.ac.uk/48900/

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