Central Banks as Political Players: Against the Mainstream
10 Pages Posted: 12 May 2010
Date Written: April 1, 2010
Abstract
One of the most widely supported arguments against attributing supervision functions to a central bank is based on the conflict of interest hypothesis.
However, in some circumstances, financial supervision enhances central bank’s independence. In fact, when a central bank is goal independent, it acts as a political player: in this context this institution can strengthen its independence by widening its constituency. Financial supervision is a means through which central bank can gain the support of commercial banks. These last ones have interest to give their support in exchange for favourable measures of financial regulation.
Keywords: Supervision, Monetary policy, Economic Policy
JEL Classification: G28, E58
Suggested Citation: Suggested Citation
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