Central Banking and Supervision: The Political Cycle

28 Pages Posted: 7 Nov 2012

See all articles by Donato Masciandaro

Donato Masciandaro

Bocconi University - Department of Economics; Bocconi University - Department of Economics (ECO)

Date Written: November 1, 2012

Abstract

By the early ‘2000 an increasing numbers of countries had adopted a well defined central bank framework, which is characterized by two intertwined features: the authority becomes specialized in achieving the monetary policy goals, and consequently its traditional responsibilities in pursuing the financial stability are less important in its institutional perimeter. The fundamental effect was that the central bank involvement in supervision (CBS) generally decreased.

But then, after the Financial Crisis erupted in 2008, reforms are undertaken and projects are under discussion in order to reconsider the central bank role in the supervisory field. Therefore the main research question is: Why and how and is moving the CBS? This article offers two contributions. A political economy model explains the relationship between central banking and banking supervision. The theoretical framework is used to interpret the evolution of the CBS before and after the Crisis.

Keywords: central banking, monetary policy, banking supervision, financial crisis, central bank independence

JEL Classification: G18, G28, E50, E52, E58

Suggested Citation

Masciandaro, Donato, Central Banking and Supervision: The Political Cycle (November 1, 2012). Paolo Baffi Centre Research Paper No. 2012-131, Available at SSRN: https://ssrn.com/abstract=2171291 or http://dx.doi.org/10.2139/ssrn.2171291

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Bocconi University - Department of Economics (ECO) ( email )

Via Gobbi 5
Milan, 20136
Italy

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