Regulatory capture and banking supervision reform

Boyer, Pierre C.; Ponce, Jorge

doi:10.1016/j.jfs.2011.07.002

Cited by 79 publications

(27 citation statements)

References 30 publications

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“…Indeed, the main concern against assigning supervisory tasks to central banks, stressed once again in the recent theoretical analysis by Boyer and Ponce (2012), is the higher risk of regulatory capture it may generate, and appears to have generated in relation to, for example, the savings and loans crisis in the United States and the Barings and BCCI cases in the United Kingdom. Boot and Thakor (1993) provide another reason why supervisory tasks should be partially or completely separated from the central bank.…”

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confidence: 99%

Financial Stability and Central Bank Governance

2012

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The financial crisis has ignited a debate about the appropriate objectives and the governance structure of central banks. We use novel survey data to investigate the relation between these traits and banking system stability, focusing in particular on their role in micro-prudential supervision. We find that the separation of powers between single and multiple bank * We are grateful to Franklin Allen, Mats Bergman, Mathias Dewatripont, Francesco Giavazzi, Iman van Lelyveld, Enrico Perotti, Marco Pagano, Roberto Rocci, two anonymous referees, the editor (Andy Levin), and participants at seminars at Maastricht University supervisors cannot explain credit risk prior to or during the financial crisis. Similarly, a large number of central bank governance traits do not correlate with system fragility. Only the objective of currency stability exhibits a significant relation with non-performing loan levels in the run-up to the crisis. This effect is amplified for those countries with most frequent exposure to IMF missions in the past. Our results suggest that the current policy discussion on whether to centralize prudential supervision under the central bank and the ensuing institutional changes some countries are enacting may not produce the improvements authorities are aiming at. Whether other potential improvements in prudential supervision due to, for example, external disciplinary devices, such as IMF conditional lending schemes, are better suited to increase financial stability requires further research.JEL codes: G18, G34, G38, E58.

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Financial Stability and Central Bank Governance

2012

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“…One in which national regulators interested in their own domestic banking system set policies non-cooperatively and one in which an international regulator sets the same policy for the banks of all countries. Within this strand of the literature, our paper is most closely related to Boyer and Ponce (2012).…”

Section: Introductionmentioning

confidence: 99%

Flexible and mandatory banking supervision

Chiara¹,

Livio

Ponce

2018

Journal of Financial Stability

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Tighter regulation and more powerful supervision are being enacted after the global financial crisis. Although this trend may have positive welfare effects, it may also impose large social costs due to the strong reliance on supervisory information. We argue that offering banks a Flexible Supervision contract, designed to be chosen by those banks that will otherwise attempt to capture the supervisor, is a mechanism to implement the most efficient regulation under asymmetric information. The result that Flexible Supervision outperforms Mandatory Supervision remains robust to a series of extensions to our baseline model.

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“…In an earlier contribution, Boyer and Ponce (2012) analyze whether banking supervision responsibilities should be concentrated in the hands of a single supervisor, showing that splitting supervisory powers among different supervisors is a superior arrangement in terms of welfare when the capture of supervisors by bankers is a concern.…”

Section: Introductionmentioning

confidence: 99%

Hierarchical bank supervision

Repullo

2017

SERIEs

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This paper presents a model in which a central and a local supervisor contribute their efforts to obtain information on the solvency of a local bank, which is then used by the central supervisor to decide on its early liquidation. This hierarchical model is contrasted with the alternatives of decentralized and centralized supervision, where only the local or the central supervisor collects information and decides on liquidation. The local supervisor has a higher bias against liquidation (supervisory capture) and a lower cost of getting local information (proximity). Hierarchical supervision is the optimal institutional design when the bias of the local supervisor is high but not too high and the costs of getting local information from the center are low but not too low. With low (high) bias and high (low) cost it is better to concentrate all responsibilities in the local (central) supervisor.

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Regulatory capture and banking supervision reform

Cited by 79 publications

References 30 publications

Financial Stability and Central Bank Governance

Financial Stability and Central Bank Governance

Flexible and mandatory banking supervision

Hierarchical bank supervision

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