In sum, these four underpinnings, taken together, create clarity in the relationship between the financial supervisors and the government (and other stakeholders). With sufficient checks and balances in place, the agency will have assurances that it can operate independently to pursue its mandate, and the government will have assurances that the agency remains “in check,” i.e., that its operations remain aligned with the government’s broad policy objectives. Referring to Williamson’s definition, all this is indeed about shaping and reshaping incentives on both sides.
1 Kydland and Prescott (1977).
2 Williamson (2000).
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