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INSTITUTIONS MATTER: FINANCIAL SUPERVISION ARCHITECTURE, CENTRAL BANK AND PATH DEPENDENCE. GENERAL TRENDS AND THE SOUTH EASTERN EUROPEAN COUNTRIES

Donato Masciandaro
Paolo Baffi Centre, Bocconi University

Marc Quintyn
IMF Institute, International Monetary Fund

ABSTRACT

We propose a path dependence approach to analyze the evolution of the financial supervisory architecture, focusing on the institutional role of the central bank, and then apply our framework to describe the institutional settings in a selected sample of countries. The policymaker who decides to maintain or reform the supervisory architecture is influenced by the existing institutional setting in a systematic way: the more the central bank is actually involved in supervision, the less likely a more concentrated supervisory regime will emerge, and vice versa (path dependence effect). We test the path dependence effect describing and evaluating the evolution and the present state of the architecture of six national supervisory regimes in South Eastern Europe (SEE): Albania, Bulgaria, Greece, Romania, Serbia and Turkey. The study of the SEE countries confirms the postulated role of the central bank in the institutional setting. In five cases the high involvement of the central bank in supervision is correlated with a multi–authority regime, while in one case a high degree of financial supervision unification is related with low central bank involvement.

Keywords: Financial Supervision; Central Banks; Path Dependence; Political Economy; South Eastern Europe.

JEL classification:G18; G28 ; E58.

Acknowledgements: Special thanks go to Rosaria Vega Pansini for extensive, skilful and patient research assistance while compiling the database and the country profiles.

Correspondence:

Donato Masciandaro
Paolo Baffi Centre, Bocconi University,
via Sarfatti 25, 20136 Milan, Italy
Tel: +39 02 58365310;
fax: +39 02 58365343
e-mail: donato.masciandaro@unibocconi.it


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