This paper adds some new arguments to the thesis that the responsibility for banking supervision should be assigned to an agency formally separated by the Central bank. We also provide some additional evidence on the macro and microeconomic performance of OECD countries whose banking systems are classi ed according to the regulatory regime in place. We nd that the in ation rate is considerably higher and more volatile in countries where the Central bank acts as a monopolist in banking supervision. Besides, although banks seem to be more pro table when Central banks supervise them, they incur into higher costs and rely more on deposits with respect to more sophisticated liabilities as a funding source.The data are not de nitively in favor of functional separation. However, we argue that the evolution of nancial intermediaries, moral hazard problems and especially cost accountability seem to suggest that separation would be a better solution for industrialized countries.We also critically discuss the current arrangement of nancial regulation and supervision in the EMU: our proposal is to establish an independent European System of Financial Supervisors ESFS structured similarly to the ESCB.

The economic theory of network externalities and a simple-game theoretical framework are used to explore the issue of competition among stock exchanges and the possibility of consolidation in the European stock-exchange industry. The paper shows the existence of equilibria where exchanges may decide, even unilaterally, to achieve full compatibility through implicit mergers and remote access, specialising only in trading or listing services. Thus the consolidation of European exchanges into one may occur with a welfare-efficient outcome or with a lock-in to a Paretoinferior equilibrium, due to the network externalities and the different starting points of the various exchanges.`Implicit mergers' among exchanges together with remote access are always weakly (in half of the cases, strictly) more efficient than the actual competition. This finding also sheds light on the existence and efficacy, of ATS and rating agencies, which can be viewed respectfully as exchanges specialising in trading and listing services.

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This paper adds some new arguments to the thesis that the responsibility for banking supervision should be assigned to an agency formally separated by the Central bank. We also provide some additional evidence on the macro and microeconomic performance of OECD countries whose banking systems are classi ed according to the regulatory regime in place. We nd that the in ation rate is considerably higher and more volatile in countries where the Central bank acts as a monopolist in banking supervision. Besides, although banks seem to be more pro table when Central banks supervise them, they incur into higher costs and rely more on deposits with respect to more sophisticated liabilities as a funding source.The data are not de nitively in favor of functional separation. However, we argue that the evolution of nancial intermediaries, moral hazard problems and especially cost accountability seem to suggest that separation would be a better solution for industrialized countries.We also critically discuss the current arrangement of nancial regulation and supervision in the EMU: our proposal is to establish an independent European System of Financial Supervisors ESFS structured similarly to the ESCB.