Issues in the Unification of Financial Sector Supervision

IMF Working Papers, December 1, 2000

Source details

The paper considers the generic arguments for and against the creation of a unified regulatory agency, covering each of the main types of financial institutions (banks, insurers and securities firms).
The strongest arguments for unification are the enhanced oversight of financial conglomerates and the economies of scale they can potentially deliver.
There are a number of potentially serious disadvantages to unification, especially the risk that the change process will be mismanaged and will result in a reduction in regulatory capacity.
The issue requires careful deliberation and ultimately depends on a matrix of factors which vary in importance from country to country.

Coverage: The analysis explicitly addresses banks, insurers, and securities firms.
Main benefits identified:
- Enhanced oversight of financial conglomerates.
- Potential economies of scale from a unified agency.
Main risks and drawbacks identified:
- Potentially serious disadvantages, notably the risk that the change process will be mismanaged.
- Risk that mismanagement could result in a reduction in regulatory capacity.
Conclusion: The decision to unify supervision depends on a matrix of country-specific factors and requires careful deliberation.

Deliberation: Policymakers should weigh enhanced conglomerate oversight and economies of scale against risks of mismanagement and capacity loss.
Implementation risk: Emphasis on the management of the change process to avoid reductions in regulatory capacity.
Context dependence: The relative importance of factors favoring or opposing unification varies from country to country, implying no one-size-fits-all recommendation.

Issues in the Unification of Financial Sector Supervision - WP/00/213
- Issues in the Unification of Financial Sector Supervision - WP/00/213 (Markdown version)
- Issues in the Unification of Financial Sector Supervision - WP/00/213 (PDF)