Economic Issues

Should Financial Sector Regulators Be Independent?

Author/Editor:

Marc G Quintyn ; Michael W Taylor

Publication Date:

March 8, 2004

Electronic Access:

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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.

Series:

Economic Issues No. 2004/001

Subject:

Banking Central bank autonomy Central banks Economic sectors Financial crises Financial regulation and supervision Financial sector Financial sector policy and analysis Financial sector stability