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Towards a new architecture for financial stability: seven principles

Garicano, Luis and Lastra, Rosa M. (2010) Towards a new architecture for financial stability: seven principles. Journal of International Economic Law, 13 (3). pp. 597-621. ISSN 1369-3034

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Identification Number: 10.1093/jiel/jgq041


This article uses insights from organizational economics and financial regulation to study the optimal architecture of supervision. It suggests that the new architecture should revolve around the following principles: (i) banking, securities and insurance supervision should be further integrated; (ii) the macro-prudential supervisory function must be in the hands of the central bank; (iii) the relation between macro- and micro-supervisors must be articulated through a management by exception system involving direct authority of the macro-supervisor over enforcement and allocation of tasks; (iv) given the difficulty of measuring output on supervisory tasks, the systemic risk supervisor must necessarily be more accountable and less independent than central banks are on their monetary task; (v) the supervisory agency cannot rely on high-powered incentives to motivate supervisors, and must rely 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 with a more centralized and hierarchical one.

Item Type: Article
Additional Information: © 2010 Oxford University Press
Divisions: Economics
Centre for Economic Performance
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HE Transportation and Communications
Date Deposited: 30 May 2017 14:53
Last Modified: 16 May 2024 01:12

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