Should Financial Sector Regulators Be Independent?

Economic Issues, March 8, 2004

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Should Financial Sector Regulators Be Independent?

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Bibliographic details

• Authors: Marc G Quintyn, Michael W Taylor
• Published: March 8, 2004
• Series: Economic Issues
• DOI: https://doi.org/10.5089/9781589063099.051

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 weakened financial regulation and hindered regulators and supervisors from taking action against troubled banks.
• The paper investigates why financial sector regulators and supervisors need to be independent—from the financial services industry as well as from the government—as well as accountable, to fulfill their mandate to preserve financial sector stability.

Key findings

• Political interference has been a common contributing factor across recent crises in East Asia, Russia, Turkey, and Latin America.
• Independence from both the financial services industry and from the government is necessary for regulators and supervisors to effectively preserve financial sector stability.
• Accountability mechanisms are necessary alongside independence to ensure that regulators fulfill their mandates.

Policy implications and recommendations (as stated)

• Strengthen institutional independence of financial sector regulators and supervisors from the financial services industry.
• Strengthen independence from government interference to enable timely and effective supervisory action.
• Complement independence with accountability arrangements to ensure regulators meet their stability mandates.

Publication and metadata

• Authors: Marc G Quintyn, Michael W Taylor
• Date: March 8, 2004
• Pages: 18
• Volume: 2004
• Issue: 001
• Series: Economic Issues No. 2004/001
• DOI: https://doi.org/10.5089/9781589063099.051
• Stock No: EIIEA032
• ISBN: 9781589063099
• ISSN: 1020-5098

Subjects and keywords

• 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
• Keywords: agency independence, authority, budgetary autonomy, central bank, central bank action, Central bank autonomy, central bank procedure, East Asia, EI, Financial sector, Financial sector stability, government ministry, grant independence, independence, independence of supervision, independence of the central bank, independence work, regulator, supervisory independence

International Monetary Fund — Should Financial Sector Regulators Be Independent? (March 8, 2004)