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Mr. Marc G Quintyn and Mr. Michael W Taylor

while allowing it to remain free of interference in its operations. There is no trade-off between independence and accountability; the two concepts are complementary. Accountability is needed to make independence work. The greater the degree of independence, the more important accountability arrangements become. In countries with longer traditions of independent agencies, the evidence suggests that independent regulators typically do not behave as an irresponsible “fourth branch of government.” Indeed, regulators usually behave according to a kind of “dialogue model

Mr. Udaibir S Das, Mr. Marc G Quintyn, and Mr. Michael W Taylor

credibility of banking supervision itself. Further undermining supervisory effectiveness is the lack of trained supervisors and uncompetitive salaries. Assessments have revealed that independence and accountability arrangements in the supervision of securities markets and the insurance sector are even weaker than those for banking. Making independence work To be effective, agencies must enjoy independence in four areas. Regulatory independence —which is critical for effective rule making—means that agencies should have an appropriate degree of autonomy in setting

Mr. Marc G Quintyn and Mr. Michael W Taylor

Abstract

L'ingérence des responsables politiques dans la réglementation et le contrôle du secteur financier a aggravé la quasi-totalité des crises financières majeures de la dernière décennie, de l'Asie de l'Est, à la Russie, en passant par la Turquie et l'Amérique latine. Outre qu'elles affaiblissent la réglementation financière en général, les pressions politiques nuisent au travail des responsables de la réglementation et du contrôle chargés d'intervenir auprès des banques en difficulté. Cette brochure examine les raisons pour lesquelles les régulateurs financiers devraient pouvoir compter sur un large degré d'indépendance, non seulement vis-à-vis de l'État, mais aussi vis-à-vis des sociétés de services financiers, afin de s'acquitter de leur mandat qui est de préserver la stabilité du secteur financier.

Mr. Marc G Quintyn and Mr. Michael W Taylor

Abstract

En casi todas las grandes crisis financieras de la última década --desde Asia oriental a Rusia, Turquía y América Latina-- la interferencia política en la regulación del sector financiero contribuyó a agravar una situación ya de por sí mala. Las presiones políticas no solo debilitaron la regulación financiera sino que también impidieron que los órganos reguladores y supervisores tomaran medidas contra los bancos en problemas. En este estudio se investiga por qué, para cumplir con su mandato de preservar la estabilidad del sector financiero, los reguladores y supervisores del sector financiero tienen que ser independientes --de la industria de servicios financieros, así como del gobierno-- a la vez que deben rendir cuentas.

Mr. Marc G Quintyn and Mr. Michael W Taylor

Abstract

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 not only weakened financial regulation, but also hindered regulators and supervisors from taking action against troubled banks. This paper investigates why, to fulfill their mandate to preserve financial sector stability, financial sector regulators and supervisors need to be independent-from the financial services industry as well as from the government-as well as accountable.

Mr. Marc G Quintyn and Mr. Michael W Taylor

Abstract

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 not only weakened financial regulation, but also hindered regulators and supervisors from taking action against troubled banks. This paper investigates why, to fulfill their mandate to preserve financial sector stability, financial sector regulators and supervisors need to be independent-from the financial services industry as well as from the government-as well as accountable.

Mr. Marc G Quintyn and Mr. Michael W Taylor

Abstract

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 not only weakened financial regulation, but also hindered regulators and supervisors from taking action against troubled banks. This paper investigates why, to fulfill their mandate to preserve financial sector stability, financial sector regulators and supervisors need to be independent-from the financial services industry as well as from the government-as well as accountable.

Mr. Michael W Taylor and Mr. Marc G Quintyn
Despite its importance, the issue of financial sector regulatory and supervisory independence (RSI) has received only marginal attention in literature and practice. However, experience has demonstrated that improper supervisory arrangements have contributed significantly to the deepening of several recent systemic banking crises. In this paper we argue that RSI is important for financial stability for the same reasons that central bank independence is important for monetary stability. The paper lays out four key dimensions of RSI-regulatory, supervisory, institutional and budgetary-and discusses ways to achieve them. We also discuss institutional arrangements needed to make independence work in practice. The key issue in this respect is that agency independence and accountability need to go hand in hand. The paper discusses a number of accountability arrangements.
Mr. Michael W Taylor and Mr. Marc G Quintyn

, and financial. We discuss the importance of each of these dimensions and suggest ways to achieve them. Because of the key role of the supervisory function, it will receive more attention than it typically receives in the literature on agency independence. 6 Arrangements for agency independence are by themselves not sufficient for effective regulation and supervision. Institutional arrangements matter, the prevailing political culture matters, and, most of all, proper accountability measures are fundamental to make independence work. The paper reviews first the

Mr. Marc G Quintyn and Mr. Michael W Taylor

Abstract

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 not only weakened financial regulation, but also hindered regulators and supervisors from taking action against troubled banks. This paper investigates why, to fulfill their mandate to preserve financial sector stability, financial sector regulators and supervisors need to be independent-from the financial services industry as well as from the government-as well as accountable.