Financial Supervision Unification and Central Bank Fragmentation Effect

31 Pages Posted: 29 Sep 2005

See all articles by Donato Masciandaro

Donato Masciandaro

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

Date Written: September 2005

Abstract

This paper analyses how the central bank role can influence the unification process of the overall financial supervision architecture. We claim that the policymaker's choices can be viewed as a sequential process in which the institutional status quo matters. The degree of unification in supervision is decided based on the position of the central bank. If the central bank involvement in supervision and its reputation are high, the unification level is likely to be low, and vice versa. The central bank fragmentation effect can be explained through three possible channels: the moral hazard effect, the bureaucracy effect, the reputation endowment effect. The empirical analysis - performed with ordered logit and probit functions with a dataset of 89 countries - confirmed the robustness of the central bank fragmentation effect.

Keywords: Financial Supervision, Central Bank, Unified Supervision

JEL Classification: E58, G18, G28, L51

Suggested Citation

Masciandaro, Donato, Financial Supervision Unification and Central Bank Fragmentation Effect (September 2005). University of Lecce Economics Working Paper No. 74/35 , Available at SSRN: https://ssrn.com/abstract=808966 or http://dx.doi.org/10.2139/ssrn.808966

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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