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Global Banking Supervision Trends

The passage discusses the international perspective on separating bank supervision from central banks. In many countries, central banks are responsible for banking supervision while other agencies supervise other financial institutions. However, some countries have moved away from this model. Historically, central banks became involved in financial regulation and supervision to prevent systemic risk from banking crises. However, the experience of some countries was different - they established separate regulatory authorities outside the central bank to supervise banking, often before or after creating their central bank, as was the case in Canada which established the Office of the Inspector General of Banks in 1925 following a bank collapse.

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130 views2 pages

Global Banking Supervision Trends

The passage discusses the international perspective on separating bank supervision from central banks. In many countries, central banks are responsible for banking supervision while other agencies supervise other financial institutions. However, some countries have moved away from this model. Historically, central banks became involved in financial regulation and supervision to prevent systemic risk from banking crises. However, the experience of some countries was different - they established separate regulatory authorities outside the central bank to supervise banking, often before or after creating their central bank, as was the case in Canada which established the Office of the Inspector General of Banks in 1925 following a bank collapse.

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anusaya1988
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CHAPTER 4

INTERNATIONAL PERSPECTIVE ON SEPARATION OF SUPERVISION FROM


CENTRAL BANKS
The question of where authority for the supervision of banks and other financial
institutions should reside has become the subject of intense debate. In many countries,
responsibility for banking supervision rests with the central bank, while supervision over other
financial institutions is typically vested with other agencies. However, in recent years, there are
several cases of countries moving away from this model.
Although the early central banks were established primarily to finance commerce, foster
growth of the financial systems and to bring uniformity in the note issue, central banks in several
countries in the 20th century, notably the US, were founded to restore confidence in the banking
systems after repeated bank failures. As the incidence of banking crises started increasing, the
statutory regulation of banks was considered necessary for the protection of depositors, reduction
in asymmetry of information and for ensuring sound development of banking. In the 19th
century, central banks had started focusing their attention on ensuring financial stability and their
role had increasingly come to eliminate financial crises
. The Bank of England used to adjust the discount rate to avoid the effects of crises and
this technique was used by other European central banks as well. In the United States, a series of
banking crises between 1836 and 1914 had led to the establishment of the Federal Reserve
System. The experience of the Great Depression had a profound effect on banking regulation in
several countries and commercial banks were progressively brought under the regulation of
central banks. Thus, the prevention of systemic risk manifested by crises became the basic reason
for central banks involvement with financial regulation and supervision.
The experience of some other countries in delegating the responsibility of bank regulation
was totally different. Despite the occurrence of banking crises and the need for central banks
intervention in resolving the crises, some countries established a separate regulatory authority
outside the central bank to supervise the banking system, often several years before or after the
creation of the central bank. The Canadian Government established the Office of the Inspector
General of Banks in 1925 after the collapse of the Home Bank.

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