The Governance of Financial Supervisors: Improving Responsiveness to Market Developments

51 Pages Posted: 19 Nov 2010 Last revised: 4 Feb 2011

See all articles by Luca Enriques

Luca Enriques

University of Oxford Faculty of Law; European Corporate Governance Institute (ECGI)

Gerard Hertig

ETH Zurich; European Corporate Governance Institute (ECGI)

Date Written: November 1, 2010

Abstract

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

Enriques, Luca and Hertig, Gerard, The Governance of Financial Supervisors: Improving Responsiveness to Market Developments (November 1, 2010). Paolo Baffi Centre Research Paper No. 2010-82; ECGI - Law Working Paper No. 171/2010. Available at SSRN: https://ssrn.com/abstract=1711230 or http://dx.doi.org/10.2139/ssrn.1711230

Luca Enriques (Contact Author)

University of Oxford Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Gerard Hertig

ETH Zurich ( email )

IFW E 49
Haldeneggsteig 4
CH-8092 Zurich
Switzerland
+4144-632-4008 (Phone)
+4144-632-1097 (Fax)

HOME PAGE: http://www.hertig.ethz.ch

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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