Politicians, central banks, and the shape of financial supervision architectures

Abstract

Purpose This paper aims to investigate the role of the quality of government on financial supervisory structures in different countries. Design/methodology/approach The objectives are pursued by means of econometric tools based on probit and multinomial logit techniques. Findings It is found that the quality of government plays a crucial role in determining supervision unification. “Good” policymakers (helping hand types) prefer a unified financial authority while “bad” ones (grabbing hand type) choose specialized or hybrid models depending on how powerful is the central bank. Research limitations/implications Research limitations are represented by the endogenous nature of political variables with respect to the supervisory design. Suggestions for future research rely on finding adequate instrumental variables to be included in the empirical analysis in order to address causality issues. Practical implications The paper follows a positive approach, explaining why different supervisory structures are observed around the world. As a consequence, it does not provide any normative implication. Originality/value Its original contribution can be identified in the first attempt to include political preferences in determining the choice among different regimes of financial supervision.

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