The Governance of Financial Supervisors: Improving Responsiveness to Market Developments
51 Pages Posted: 19 Nov 2010 Last revised: 4 Feb 2011
Date Written: November 1, 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.
Keywords: Supervisory Agency Decision-Making, Financial Supervision, Governance, Supervisory Responsiveness, Transparency
JEL Classification: D23, D73, G28, H83, K22, L22
Suggested Citation: Suggested Citation