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Home > Regulation Best Practice > How Much Independence for Supervisors in Financial Market Regulation?

Regulation Best Practice

How Much Independence for Supervisors in Financial Market Regulation?

by Marc Quintyn

Conclusion

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.

Notes

1 Kydland and Prescott (1977).

2 Williamson (2000).

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Further reading

Books:

  • Bovens, Mark. “Public accountability.” In E. Ferlie, L. Lynne, and C. Pollitt (eds). The Oxford Handbook of Public Management. Oxford: Oxford University Press, 2004.
  • Das, Udaibir, and Marc Quintyn. “Financial crisis prevention and crisis management—The role of regulatory governance.” In Robert, Litan, Michel Pomerleano, and V. Sundararajan (eds). Financial Sector Governance: The Roles of the Public and Private Sectors. Washington, DC: Brookings Institution Press, 2002.
  • Quintyn, Marc, and Michael Taylor. “Robust regulators and their political masters: Independence and accountability in theory.” In Donato Masciandaro, and Marc Quintyn (eds). Designing Financial Supervision Institutions: Independence, Accountability, and Governance. Cheltenham, UK: Edward Elgar, 2007.

Articles:

  • Hüpkes, Eva, Marc Quintyn, and Michael Taylor. “The accountability of financial sector supervisors: Theory and practice.” European Business Law Review 16:6 (2005): 1575–1620.
  • Kydland, Finn, and E. Prescott. “Rules rather than discretion: The inconsistency of optimal plans.” Journal of Political Economy 85:3 (1977): 473–491.
  • Majone, Giandomenico. “Strategy and structure: The political economy of agency independence and accountability.” Designing Independent and Accountable Regulatory Agencies for High Quality Regulation: Proceedings of an Expert Meeting in London, Organization for Economic Cooperation and Development, January 10–11, 2005: 126–155.
  • Quintyn, Marc, Silvia Ramirez, and Michael Taylor. “Fear of freedom—Politicians and the independence and accountability of financial sector supervisors.” IMF Working Paper 07/25, Washington, DC: International Monetary Fund, 2007. Also in Donato Masciandaro, and Marc Quintyn (eds). Designing Financial Supervision Institutions: Independence, Accountability, and Governance. Cheltenham, UK: Edward Elgar, 2007.
  • Quintyn, Marc. “Governance of financial supervisors and its effects—a stocktaking exercise.” SUERF Studies (2007/4): 64
  • Rogoff, Kenneth. “Optimal degree of commitment to an intermediate monetary target: Inflation gains versus stabilization costs.” Quarterly Journal of Economics 100 (1985): 1169–1189.
  • Williamson, Oliver. “The new institutional economics: Taking stock, looking ahead.” Journal of Economic Literature 38:3 (2000): 595–613.

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Article Author

  • Marc QuintynMarc Quintyn
    Division Chief, International Monetary Fund Institute, USA

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