Should Financial Sector Regulators Be Independent?

In nearly every major financial crisis of the past decade-from East Asia to Russia, Turkey, and Latin America-political interference in financial sector regulation helped make a bad situation worse. Political pressures not only weakened financial regulation, but also hindered regulators and supervisors from taking action against troubled banks. This paper investigates why, to fulfill their mandate to preserve financial sector stability, financial sector regulators and supervisors need to be independent-from the financial services industry as well as from the government-as well as accountable.
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Volume/Issue: Volume 2004 Issue 001
Publication date: March 2004
ISBN: 9781589063099
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Topics covered in this book

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Business and Economics , Law , Banks and Banking , Finance , Business and Financial , EI , central bank , independence , authority , regulator , independence work , agency independence , grant independence , budgetary autonomy , central bank action , independence of supervision , central bank procedure , government ministry , supervisory independence , independence of the central bank , Financial sector , Central bank autonomy , Financial sector stability , East Asia

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Summary

In nearly every major financial crisis of the past decade-from East Asia to Russia, Turkey, and Latin America-political interference in financial sector regulation helped make a bad situation worse. Political pressures not only weakened financial regulation, but also hindered regulators and supervisors from taking action against troubled banks. This paper investigates why, to fulfill their mandate to preserve financial sector stability, financial sector regulators and supervisors need to be independent-from the financial services industry as well as from the government-as well as accountable.

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