Integration of financial supervision

The emergence of financial conglomerates and multinational financial institutions as well as the development of new financial products have raised concerns as to the ability of separate sectoral supervisors and different national authorities to effectively oversee financial markets. Concentrating on the European situation, this paper addresses these concerns by putting special emphasis on the role of organizational form in the supervisory process of financial institutions. I will first outline the developments that have ledrope, proceed to discuss both some common and specific aspects of su to increasing pressures to reform the current supervisory systems in Eupervision of financial conglomerates and multinationals, and, finally, examine the challenges related to the integration of supervision. Using theoretical framework derived from economic theory, this paper points that multitude of factors (eg, several multitasking-related concerns) are likely to affect the effectiveness of integrated supervision.

Introduction: The European financial markets have changed rapidly over the past three decades fuelled by deregulation and advances in information technology. These factors have provided scope for consolidation, as reflected in the increasing popularity of financial conglomerates and multinational financial institutions.Technological advances and deregulation have also accelerated the emergence of new financial products that are more difficult to classify under the traditional categories of banking, securities and insurance. All these developments have contributed towards the growing need for the separate sectoral supervisors as well as the different national authorities to cooperate in the supervision of financial institutions. At the level of European Union, this has raised the question of creating a supranational supervisory authority. In some individual countries like Finland where the current system of financial supervision is still based on (partial) sectoral separation between the supervisors, these developments have led to suggestions to rethink the supervisory structure.

Author: Helena Holopainen

Source: Research Discussion Papers, Bank of Finland

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