Designing Institutions for Financial Stability: Regulation and Supervision by Objective for the Euro Area

Abstract

In this paper, we discuss pros and cons of different models for financial market regulation and we present a proposal for the re-organisation of regulatory and supervisory agencies in the Euro Area, which is based on the assignment of different objectives or "finalities" to different authorities, both at the domestic and the European level. The three objectives of supervision - microeconomic stability, investor protection and proper behaviour, efficiency and competition - should be assigned to three distinct European authorities, each one at the centre of a European system of financial regulators and supervisors, specialized in overseeing the entire financial market with respect to a single regulatory objective and regardless of the subjective nature of the intermediaries. Each system should be structured and organized similarly to the European System of Central Banks and work in connection with the central bank which would remain the institution responsible for price and macroeconomic stability.

Keywords: Financial regulation, supervisory authorities, european financial integration

JEL Classification: G20, G21, G28