financial regulation davis financial supervisory...

Financial Supervisory Structures

Kevin Davis 1

Financial Regulation in Asia

Financial Supervisory Structures in Asia: some notes and data

A. Introduction

The allocation of financial supervision responsibilities across various agencies is a topic of some

importance, particularly given the apparent failings of various models exposed by the global financial

crisis. In the UK, for example, the FSA had responsibility for both prudential regulation and securities

markets – and it is generally acknowledged that insufficient attention and resources were allocated

to the former activity.

There are a number of alternative models which exist around the world, involving various

combinations of central banks, prudential supervisors for specific sectors such as banking, insurance

and pensions, securities market and business conduct regulators, deposit insurance agencies, and

competition and consumer agencies.

There are a number of sources of data regarding the allocation of supervisory responsibilities around

the globe. The World Ban has recently produced a dataset showing changes between 1999-2010,

and data available for Asian countries is attached. Also attached is data from World Bank: Bank

Regulation and Supervision Survey which provides additional information on supervision of pension

funds. Some researchers, such as Masciandaro et al have attempted to construct indices to measure

the degree of integration of supervision. They construct a Financial Supervision Unification index

(FSI) and a Central Bank as Financial Authority Index (CBFA) as described in the attachment.

B. Questions and Possible Work Plan

1. Clearer understanding of the categorisations which world bank and others use.

2. Develop better database of financial regulation structures in Asia – including independence

and funding characteristics

3. Literature review of determinants of / optimal supervisory structures

4. Identify issues for regulatory harmonisation across Asia arising from alternative structures

5. How are regulatory structures related to financial structure (eg dominance of banks v

markets, universal banking etc)?

6. How have regulatory structures adapted over time?


Kevin Davis 2

Prudential

Supervision

Austr

alia

Hong

Kong

Jap

an

Korea

, Rep.

New

Zealand

Singa

pore

Malaysia China India Pakistan Philippines Sri Lanka Thailand Vietnam

1999 FSA Sectoral FSA FSA Sectoral CB B+I WCB Sectoral Sectoral S+I, BWCB Sectoral Sectoral Sectoral




2003 FSA Sectoral FSA FSA Sectoral CB B+I WCB SOCB Sectoral S+I, BWCB Sectoral Sectoral Sectoral

2004 FSA Sectoral FSA FSA Sectoral CB B+I WCB SOCB Sectoral S+I, BWCB Sectoral Sectoral Sectoral Sectoral






2010 FSA Sectoral FSA FSA B+I WCB CB B+I WCB SOCB Sectoral S+I, BWCB Sectoral Sectoral Sectoral Sectoral

Legend:

B: banking sector supervision, I-insurance sector supervision, S-securities supervision

Sectoral: sectoral supervision, with banking supervision within the Central Bank

OCB: outside Central Bank

SOCB: sectoral supervision, all supervisions outside Central Bank

WCB: within Central Bank

BWCB: banking sector supervision within Central Bank

B+I, B+S, I+S: Partial integrations

CB - central bank is the unified supervisior

Business

Conduct

Austr

alia

Hong

Kong

Jap

an

Korea

, Rep.

New

Zealand

Singa

pore

Malaysia China India Pakistan Philippines Sri Lanka Thailand Vietnam

1999 TP NBC FSA NBC NBC OBC NBC NBC NBC NBC NBC NBC NBC




2003 TP NBC FSA NBC NBC OBC NBC NBC NBC NBC NBC OBC NBC

2004 TP NBC FSA NBC NBC OBC NBC NBC NBC NBC NBC OBC NBC NBC

2005 TP NBC FSA NBC NBC OBC NBC NBC NBC NBC NBC OBC NBC NBC

2006 TP NBC FSA NBC NBC OBC Sectoral NBC NBC OBC Sectoral OBC NBC NBC

2007 TP NBC FSA NBC NBC OBC Sectoral NBC Sectoral OBC Sectoral OBC NBC NBC



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LEGEND: NBC: no business conduct authority for banking and/or insurance

OBC: different agency than prudential supervisor, at least for banking BC (e.g, Banking Ombudsman, Complaint Boards, Financial Consumer Agency)

Sectoral: sectoral micro-prudential supervisors are assigned business conduct supervision function

FSA/CB: FSA or CB as integrated micro-prudential supervisors are also assigned the function of business conduct supervision (FSA/CB)

TP: Twin-peak model, i.e. there is a unified authority with single mandate for business conduct supervision


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World Bank: Bank Regulation and Supervision Survey

12.2 Is the body/agency in charge of supervising banks also responsible for the supervision of the

following financial sectors?

Country

Insur

ance

Secur

ities

Pension

funds

Other (please explain)

AUSTRALIA Yes No Yes No ---

BANGLADESH No No No Yes non-bank financial institutions

BHUTAN Yes Yes Yes No ---

CHINA-PEOPLE'S REP. --- --- --- --- ---

FIJI Yes Yes Yes --- ---

HONG KONG No No No --- ---

INDIA No No No Yes NON BANKING FINANCIAL COMPANIES

INDONESIA No No No No ---

KOREA, REPUBLIC OF Yes Yes Yes Yes accounting

MALAYSIA Yes No No Yes Investment banks in cooperation with

the Securities Commision (SC),

Development Finance Institutions

(DFIs), payment systems operators.

MALDIVES Yes No No Yes Non bank financial corporations such

as leasing and housing development

corporations

MYANMAR No --- --- --- ---

NEPAL No No No No ---

NEW ZEALAND Yes No No Yes Non-bank deposit taking institutions

and the payment system

PAKISTAN No No No Yes Yes(Development Finance Instituions,

Microfinance Banks and Exchange

Companies)

PHILIPPINES No No No No ---

SAMOA Yes No Yes Yes We also supervise money remitters

regarding compliance with the AML

requirements

SRI LANKA No No No Yes Registered finance companies, leasing

companies, primay dealers

TAIWAN Yes Yes No No ---

THAILAND No No No Yes Finance Companies and Credit Fonciers

TONGA No No No --- ---

VANUATU Yes No Yes Yes Credit Institutions


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Masciandaro and Quintyn Table 1 Supervisory Authorities in 102 countries: FSU Index and CBFA Index (year: 2008)


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The initials have the following meaning: B = authority specialized in the banking sector; BI = authority specialized in the banking sector and insurance sector; CB = central bank; G= government; I = authority specialized in the insurance sector; S = authority specialized in the securities markets; U = single authority for all sectors ; BS = authority specialized in the banking sector and securities markets;; SI = authority specialized in the insurance sector and securities markets. (*) (b) = banking or central banking law; (s) = security markets law; (i) = insurance law (**) = state or regional agencies, or self-regulated agencies Source: Masciandaro (2004 and 2006) and our calculation

FSU INDEX The index was built on the following scale: 7 = Single authority for all three sectors (total number of supervisors=1); 5 = Single authority for the banking sector and securities markets (total number of supervisors=2); 3 = Single authority for the insurance sector and the securities markets, or for the insurance sector and the banking sector (total number of supervisors=2); 1 = Specialized authority for each sector (total number of supervisors=3). We assigned a value of 5 to the single supervisor for the banking sector and securities markets because of the predominant importance of banking intermediation and securities markets over insurance in every national financial industry. It also interesting to note that, in the group of integrated supervisory agency countries, there seems to be a higher degree of integration between banking and securities supervision than between banking and insurance supervision1; therefore, the degree of concentration of powers, ceteris paribus, is greater. These observations do not, however, weigh another qualitative characteristic: There are countries in which one sector is supervised by more than one authority. It is likely that the degree of concentration rises when there are two authorities in a given sector, one of which has other powers in a second sector. On the other hand, the degree of concentration falls when there are two authorities in a given sector, neither of which has other powers in a second sector. It would therefore seem advisable to include these aspects in evaluating the various national supervisory structures by modifying the index as follows: adding 1 if there is at least one sector in the country with two authorities, and one of these authorities is also responsible for at least one other sector; subtracting 1 if there is at least one sector in the country with two authorities assigned to supervision, but neither of these authorities has responsibility for another sector; 0 elsewhere. ** CBFA INDEX For each country, and given the three traditional financial sectors (banking, securities and insurance), the CBFA index is equal to: 1 if the central bank is not assigned the main responsibility for banking supervision; 2 if the central bank has the main (or sole) responsibility for banking supervision; 3 if the central bank has responsibility in any two sectors; 4 if the central bank has responsibility in all three sectors (Table 1). In evaluating the role of the central bank in banking supervision, we considered the fact that, whatever the supervision regime, the monetary authority has responsibility in pursuing macro financial stability. Therefore, we chose the relative role of the central bank as a rule of thumb: we assigned a greater value (2 instead of 1) if the central bank is the sole or the main authority responsible for banking supervision.


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REFERENCES

Donato Masciandaro (2008) “Politicians and Financial Supervision Unification outside the Central

Bank: An Update of Theory and Evidence “ Paolo Baffi Centre Research Paper Series No. 2008-01,

University of Bocconi

Donato Masciandaro and Marc Quintyn “After the Big Bang and Before the Next One? Reforming the

Financial Supervision Architecture and the Role of the Central Bank. A Review of Worldwide Trends,

Causes and Effects (1998-2008)” Paolo Baffi Centre Research Paper Series No. 2009-37 University of

Bocconi

World Bank Organization of Financial Sector Supervision

http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTGLOBALFINREPORT/0,,contentMDK:232

67422~pagePK:64168182~piPK:64168060~theSitePK:8816097,00.html

World Bank Bank Regulation and Supervision Survey

http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTGLOBALFINREPORT/0,,contentMDK:232

67421~pagePK:64168182~piPK:64168060~theSitePK:8816097,00.html

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