The Governance of Financial Supervisors: Improving Responsiveness to Market Developments
University of Oxford - Faculty of Law; European Corporate Governance Institute (ECGI)
ETH Zurich; European Corporate Governance Institute (ECGI)
November 1, 2010
Paolo Baffi Centre Research Paper No. 2010-82
ECGI - Law Working Paper No. 171/2010
We offer a menu of mechanisms to improve the governance of ‘normal times’ financial supervisors (as opposed to resolution agencies and systemic risk boards). To enhance supervisory effectiveness, we propose to institutionalize strong CEOs, with boards or commissions being limited to basic policy decision‐making and to monitoring. Moreover, lower level staff would get increased line responsibilities. Market responsiveness, for its part, would be improved by subjecting supervisors to reinforced disclosure requirements. In addition, they would have to ‘act or explain’ when a financial intermediary’s RoE or CDS spreads rise above pre‐set thresholds. Finally, the market for supervisory control would be fostered by reinforcing the contingent powers of resolution agencies. This menu approach facilitates implementation and avoids ‘one size fits all’ effects.
Number of Pages in PDF File: 51
Keywords: Supervisory Agency Decision-Making, Financial Supervision, Governance, Supervisory Responsiveness, Transparency
JEL Classification: D23, D73, G28, H83, K22, L22
Date posted: November 19, 2010 ; Last revised: February 4, 2011
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