The sTrucTure of financial supervision Approaches and Challenges in a Global Marketplace 30 Group of Thirty All members of the Study Group served in their personal capacities. The views expressed in this report do not necessarily reflect the views or polices of their respective institutions, nor does publication of the report by the Group of Thirty imply an endorsement of the views expressed herein. Copies of this report are available for $95 from: The Group of Thirty 1726 M Street, N.W., Suite 200 Washington, D.C. 20036 Tel: (202) 331-2472 Fax: (202) 785-9423 www.group30.org email:[email protected] The sTrucTure of financial supervision Approaches and Challenges in a Global Marketplace 30 Group of Thirty Washington, DC 2008 CONTENTS Foreword................................................................................................................................................... 7 Acknowledgments..................................................................................................................................9 Financial.Regulatory.Systems.Working.Group............................................................................... 10 Executive.Summary............................................................................................................................... 11 Part.I:.Analysis........................................................................................................................................17 Introduction...................................................................................................................................... 18 Background....................................................................................................................................... 19 The.Policy.Goals.of.Regulation......................................................................................................21 A..Safety.and.Soundness.of.Financial.Institutions..............................................................22 B.. Mitigation.of.Systemic.Risk.................................................................................................22 C..Fairness.and.Efficiency.of.Markets....................................................................................22 D..Protection.of.Customers.and.Investors............................................................................2 The.Four.Approaches.to.Financial.Supervision.........................................................................2 1.. The.Institutional.Approach.................................................................................................24 2.. The.Functional.Approach....................................................................................................24 .. The.Integrated.Approach....................................................................................................24 4.. The.Twin.Peaks.Approach...................................................................................................24 Selected.Examples.of.Each.Model.of.Financial.Supervision...................................................24 The.Institutional.Approach—China.and.Mexico.................................................................24 China........................................................................................................................................25 Mexico.....................................................................................................................................26 The.Functional.Approach—Italy.and.France........................................................................26 Italy...........................................................................................................................................26 France......................................................................................................................................27 The.Integrated.Approach—The.United.Kingdom.and.Germany......................................28 The.United.Kingdom.............................................................................................................28 Germany..................................................................................................................................29 The.Twin.Peaks.Approach—Australia.and.the.Netherlands.............................................0 Australia...................................................................................................................................1 The.Netherlands.....................................................................................................................1 The.Exception—The.U.S..Model..............................................................................................2 An.Assessment.of.the.Four.Supervisory.Approaches............................................................. The.Institutional.Approach......................................................................................................4 The.Functional.Approach..........................................................................................................4 The.Integrated.Approach..........................................................................................................6 The.Twin.Peaks.Approach........................................................................................................7 The.Role.of.the.Central.Bank.........................................................................................................9 The.Role.of.Deposit.Insurance......................................................................................................42 Domestic.Coordination.Issues.among.Supervisors..................................................................4 Cross-Border.Coordination.Issues.............................................................................................. 46 Lessons.Learned.from.Recent.Experiences................................................................................49 Twelve.Principal.Concluding.Observations............................................................................... 50 A.Final.Comment.........................................................................................................................51 Part.II:.Profiles........................................................................................................................................5 The.Institutional.Approach............................................................................................................55 China..................................................................................................................................................57 Hong.Kong....................................................................................................................................65 Mexico..........................................................................................................................................75 The.Functional.Approach...............................................................................................................8 Brazil..............................................................................................................................................85 France............................................................................................................................................95 Italy..............................................................................................................................................105 Spain.............................................................................................................................................115 The.Integrated.Approach............................................................................................................. 12 Canada........................................................................................................................................ 125 Germany..................................................................................................................................... 17 Japan...........................................................................................................................................145 Qatar........................................................................................................................................... 15 Singapore....................................................................................................................................161 Switzerland................................................................................................................................169 The.United.Kingdom................................................................................................................ 175 The.Twin.Peaks.Approach............................................................................................................185 Australia..................................................................................................................................... 187 The.Netherlands....................................................................................................................... 197 The.Exception—The.United.States...........................................................................................205 Financial.Crisis.Management.Mechanisms—The.European.Union....................................227