The Federal Structure of Financial Supervision: A Story of Information-Flow
40 Pages Posted: 24 May 2016 Last revised: 25 Jun 2017
Date Written: May 23, 2016
This paper analyzes the financial regulatory structure of the US (federal level) from the point of view of information-flow. Two central discussions regarding regulation of the financial sector have been developing simultaneously: one regards the role of financial regulators in crisis prevention and mitigation, the other considers the efficiency of a consolidated versus a fragmented regulatory structure. Within these debates, operational problems have been largely ignored. Economists have traditionally approached the optimal structure of financial supervision from a public choice angle, focusing on different types of inefficiencies, including agency problems, capture of the financial regulator, monitoring, and self-interested regulators. These valuable perspectives sidestep an equally important public administration problem, namely the problem of information-flow within and among financial regulatory authorities. The novelty here is that this paper approaches the matter of the optimal structure for financial regulators from the standpoint of organizational design and information–flow. Furthermore, the article proposes a new theoretical framework for analyzing financial regulatory structures, and draws for this purpose on organizational theory. The article identifies the pros and cons of the different structures and offers a unique way to analyze them. It uses the US federal financial supervisory system as a case study, points out its strengths and weaknesses, and offers a solution to the latter.
Keywords: Regulatory Structures, Information Flow, Financial Supervision, Institutional Design
JEL Classification: G01, G14, G15, G18, G28, H11, H12, H41, H70, K23, L1, L5
Suggested Citation: Suggested Citation