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Supervision and Central Banking: Improving the Exchange of Information

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Document pages: 17 pages

Abstract: In the last few years, the relationship between supervision and central banking has evolved. Following the example of the UK, supervisory responsibilities have been allocated in some countries to independent authorities, separate from the central bank. In other countries, such as the Netherlands, prudential supervision of all financial institutions has been fully integrated in the central bank. I do not want to repeat here all the arguments for or against the separation of supervision from central banking (they have been thoughtfully analysed by Charles Goodhart and Donato Masciandaro, among others). But I do recall that the ECB took a position in 2001 on the fundamental role of central banks in prudential supervision, stressing the importance of confidential supervisory information in the conduct of central banking functions. The recent financial market turmoil has confirmed the importance of a smooth and efficient relationship between the central banking and supervisory functions; it has also led to a debate about a reform of the current supervisory structure in some countries such as the UK and the US. The report by the Financial Stability Forum (FSF) entitled "Enhancing Market and Institutional Resilience " presented to the G7 last April includes a number of policy recommendations to help prevent any recurrence of financial stresses similar to the ones experienced during the current turmoil. Among its many recommendations, the FSF refers to the need for supervisory authorities and central banks to improve cooperation and their exchanges of information. It calls in particular for such exchanges to be rapid during periods of market strain.

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