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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

Abstract

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
Management
Centre for Economic Performance
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HE Transportation and Communications
Sets: Departments > Economics
Departments > Management
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 30 May 2017 14:53
Last Modified: 18 Feb 2020 19:09
URI: http://eprints.lse.ac.uk/id/eprint/79248

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