Marc Quintyn

Does Regulatory Governance Matter for Financial System Stability? An Empirical Analysis

This paper provides empirical evidence that the quality of regulatory governance-governance practices adopted by financial system regulators and supervisors-matters for financial system soundness. The paper constructs indices of financial system soundness and regulatory governance, based on country data collected from the Financial Sector Assessment Program (FSAP). Regression results indicate that regulatory governance has a significant influence on financial system soundness, along with variables reflecting macroeconomic conditions, the structure of the banking system, and the quality of political institutions and public sector governance. The results also indicate that good public sector governance amplifies the impact of regulatory governance on financial system soundness.

The Fear of Freedom: Politicians and the Independence and Accountability of Financial Sector Supervisors

Compared with the case of central bank independence, independence for financial sector supervisors remains more controversial. This paper analyzes changes in independence and accountability arrangements in a set of 32 countries that overhauled their legal and/or institutional frameworks for supervision in recent years. Despite improvements, there is strong evidence that the endorsement of independence remains half-hearted, which shows itself through either overcompensation on the accountability side, or resort to political control mechanisms. The latter could potentially undermine the agencys credibility. The results indicate that policymakers still need to be persuaded of the long-term benefits of independence for financial sector soundness, and of the potential for a virtuous interaction between independence and accountability, if the arrangements are well-designed.

Inside and outside the central bank: Independence and accountability in financial supervision: Trends and determinants

This paper analyzes recent trends in, and determinants of, financial supervisory governance inside and outside central banks. We first review the case for supervisory independence and accountability in order to frame the econometric work on their determinants. We then calculate the levels of supervisory independence and accountability in 55 countries, disentangling similarities and differences among central banks and pure financial supervisors. The empirical analysis of the determinants indicates that the quality of public sector governance plays a decisive role in establishing accountability arrangements, more than independence arrangements. It also shows that decisions regarding levels of independence and accountability are not well-connected. The results also show that the likelihood for establishing governance arrangements suitable for supervision is higher when the supervisor is located outside the central bank.

The Economic Crisis: Did Financial Supervision Matter?

The Asian financial crisis marked the beginning of worldwide efforts to improve the effectiveness of financial supervision. However, the crisis that started in 2007–08 was a crude awakening: several of these improvements seemed unable to avoid or mitigate the crisis. This paper brings the first systematic analysis of the role of two of these efforts - modifications in the architecture of financial supervision and in supervisory governance - and concludes that they were negatively correlated with economic resilience. Using the emerging distinction between macro- and micro-prudential supervision, we explore to what extent two separate institutions would allow for more checks and balances to improve supervisory governance and, thus, reduce the probability of supervisory failure.

Building Supervisory Structures in Sub-Saharan Africa - An Analytical Framework

Current trends in financial sector development in sub-Saharan Africa are prompting policymakers to focus on the design of appropriate supervisory structures. Against the backdrop of worldwide efforts to remodel supervisory structures, this paper develops an analytical framework for designing a regulatory strategy that could assist in prioritizing the needs for regulation and supervision over time. Such a strategy should facilitate the design of a supervisory structure suitable for an individual countrys current and future needs. The paper emphasizes that in the case of sub-Saharan Africa, any such strategy is constrained by the reality of capacity limitations and should take into account the need to keep the central bank involved in the process. Building on the framework, the paper identifies a number of supervisory structures that could meet sub-Saharan Africas needs.

THE GOVERNANCE OF FINANCIAL SUPERVISION: RECENT DEVELOPMENTS

This paper examines the evolution of financial supervision as a policy tool over the last three decades, with a focus on the issues raised by the Global Crisis. It considers a sample of advanced and emerging economies to discuss the four main questions debated in the literature, and addressed in the economic policy arena: the architecture of supervision, the role of the central bank as supervisor, the governance of supervision, and financial supervision vs. the internationalization of finance. Our survey finds that, on each of these issues, theory and practice do not offer clear‐cut answers and unambiguous optimal solutions. At the same time, the most promising approach is to tackle financial supervision as a principal‐agent problem, where economics and political economy approaches must be used in combination to improve both positive and normative analyses of supervisory governance.

Accountability arrangements for financial sector regulators

Policymakers are often reluctant to grant independence to the agencies that regulate and supervise the financial sector because of the fear that these agencies, with their wide-ranging responsibilities and powers, could become a law unto themselves. This pamphlet describes mechanisms for making regulatory agencies accountable not only to the government but also to the industry they supervise and the public at large, with examples from a range of countries.

Commodity Price Volatility and Inclusive Growth in Low-Income Countries

This title studies the challenges posed by commodity price volatility and discusses policies to promote growth that is inclusive of all the citizens in low-income countries (LICs). It builds on a diagnosis of the short- and long-run challenges encountered by LICs in the face of commodity price volatility and pervasive inequalities, and then proposes context-specific solutions, drawing both from top notch academic work and from cross-regional experiences. More specifically, the book explores macroeconomic policy options such as monetary policy responses to rising fuel and food prices in LICs and the building of fiscal institutions to prevent boom and bust cycles in commodity exporters. The book also explores how the international community could help, through initiatives on transparency and accountability, and by donor support to modernise agriculture and support food security.

Financial Supervisory Independence and Accountability - Exploring the Determinants

We analyze recent trends in, and determinants of, financial supervisory governance. We first calculate levels of supervisory independence and accountability in 55 countries. The econometric analysis of the determinants indicates that the quality of public sector governance plays a decisive role in establishing accountability arrangements, more than independence arrangements. It also shows that decisions regarding levels of independence and accountability are not well-connected. The results also show that the likelihood of establishing adequate governance arrangements are higher when the supervisor is located outside the central bank.

Financial Supervision in the EU: Is There Convergence in the National Architectures?

Against the background of the debate on the advisability of further centralizing prudential supervision in the EU this paper develops a study of applied institutional economics, analyzing the financial supervisory architecture of each of the 27 EU countries and assesses their degree of institutional convergence. The paper investigate whether the recent wave of reforms are leading to a convergence of the national architectures. JEL CLASSIFICATION: G28, G38, E58.