The Structure, Scope, and Independence of Bank Supervision : An International Comparison

Many countries around the world have experienced banking crises in the past two decades, and all countries are witnessing substantial changes in the structure and nature of banking. These developments have led national and multilateral policymakers to focus increased attention on the crucial role of banking supervision. This focus is reinforced by the fact that “one of the important [international] trends has been, and continues to be, a move away from regulation and towards supervision.” In light of this trend, policy discussions specifically focus on several issues that must be addressed in establishing and maintaining effective supervision, including the structure, scope, and independence of bank supervision. Should banks be subject to one or multiple supervisory authorities? Should the central bank be involved in bank supervision? Should bank supervisory authorities supervise other financial service industries, including in particular securities and insurance? To what degree should bank supervisors be subject to political and economic policy pressure and influence?How these issues are addressed is important because policies that fail to provide for an appropriate bank supervisory framework may undermine bank performance and even lead to full-scale banking crises.The intense interest policymakers have shown in these issues has not been matched by researchers. In particular, there is very little systematic empirical evidence on how, or indeed whether, the structure, scope, and independence of bank supervision affect the banking industry. This gap was addressed in a recent OCC working paper (Working Paper 2002-2), which this article summarizes