The Architecture of Supervision

65 Pages Posted: 12 Jun 2019

See all articles by Miguel Ampudia

Miguel Ampudia

European Central Bank (ECB) - Directorate General Research

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Andreas Beyer

European Central Bank (ECB)

Jean-Edouard Colliard

HEC Paris - Finance Department

Agnese Leonello

European Central Bank, Financial Research Division

Angela Maddaloni

European Central Bank (ECB)

David Marques-Ibanez

European Central Bank (ECB)

Date Written: May 27, 2019

Abstract

The architecture of supervision – how we define the allocation of supervisory powers to different policy institutions – can have implications for policy conduct and for the economic and financial environment in which these policies are implemented. Theoretically, an integrated structure for monetary policy and supervision brings important benefits arising from better information flow and policy coordination. Aggregate supervisory information may significantly improve the conduct of monetary policy and the effectiveness of the lender of last resort function. As long as the process towards an integrated structure does not shrink the set of available tools, monetary policy and supervision are no less effective in pursuing their objectives than a separated structure. Additionally, an integrated structure does not seem to be correlated with more price and/or financial instability, as suggested by analysing a large global set of countries with different supervisory set-ups. A centralised structure for supervision entails significant benefits in terms of fewer opportunities for supervisory arbitrage by banks and less informational asymmetry. A large central supervisor can take advantage of economies of scale and scope in supervision and gain a broader perspective on the stability of the entire banking sector, which should result in improved financial stability. Potential drawbacks of a centralised supervisory structure are the possible lack of specialisation relative to local supervisors and the increased distance between the supervisor and the supervised institutions. We discuss the implications of our findings in the euro area context and in relation to the design of the Single Supervisory Mechanism (SSM).

Keywords: supervisory structure, central banks, lender of last resort, policy coordination

JEL Classification: E5, G21, G38

Suggested Citation

Ampudia, Miguel and Beck, Thorsten and Beyer, Andreas and Colliard, Jean-Edouard and Leonello, Agnese and Maddaloni, Angela and Marques-Ibanez, David, The Architecture of Supervision (May 27, 2019). ECB Working Paper No. 2287 (2019); ISBN 978-92-899-3549-4 . Available at SSRN: https://ssrn.com/abstract=3402889

Miguel Ampudia

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Thorsten Beck

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Andreas Beyer

European Central Bank (ECB) ( email )

Eurotower
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6468 (Phone)
+44 69 1344 6000 (Fax)

Jean-Edouard Colliard

HEC Paris - Finance Department ( email )

France

Agnese Leonello

European Central Bank, Financial Research Division ( email )

Angela Maddaloni (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

David Marques-Ibanez

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
49 6913 44 6460 (Phone)
49 6913 44 6460 (Fax)

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