How to Regulate the Regulators: Applying Principles of Good Corporate Governance to Financial Regulatory Institutions

Abstract

There is a growing literature about the question of who should regulate the regulators. This paper is interested in the question of how to regulate the regulators. More specifically, it explores how far it may be feasible to apply rules and principles of good corporate governance to the governance of financial regulators and financial regulatory institutions. For this purpose, the paper discusses the literature on the differences between private and public sector firms and their application to financial regulatory institutions, followed by an assessment of conceptual similarities between the governance of financial regulatory institutions and corporate governance. Subsequently, it turns to the core of the analysis, namely the question how far standards of good corporate governance should be applied to the governance of financial regulatory institutions.

Keywords: Financial Regulatory Institutions, Corporate Governance, Principal-Agent Problem, Independence of Regulators, Organisational Design

JEL Classification: G18, G34, K22, O16