The Organizational Structure of Banking Supervision

type="main" xml:lang="en"> Does it matter whether banking supervision is undertaken in-house in the Central Bank or in a separate specialised supervisory institution? After all, bank supervisors and the Central Bank must continue to work closely together wherever the supervisors are located. Nevertheless there has been a recent trend towards hiving off bank supervision to a separate agency, as in the UK. The main driving forces are the rise of the universal bank, increased conglomeration, and concerns with conflicts of interest. Such separation, however, raises questions whether systemic stability might suffer. The ethos and culture of the separate supervisor might come to focus more on conduct of business, consumer protection, issues. Potentially systemic financial crises would have to be handled by a committee. These are qualitative issues, and developed countries, with differing historical, legal and institutional backgrounds, will come to differing conclusions. But in less developed countries, more weight needs to be placed on ensuring the quality of the supervisory staff, i.e. their professional skills, independence from external pressures, and adequate funding. This tells strongly towards retaining banking supervision under the wing of the Central Bank in such emerging countries. (J.E.L.: E5, F3, G2).