There exists a lively debate as for the appropriate architecture of the financial supervision regime, with a long list of theoretical advantages and disadvantages associated with each one of its key dimensions. The present study investigates whether and how bank profit efficiency is influenced by the central bank’s involvement in financial supervision, the unification of financial authorities, and the independence of the central bank. The results show that efficiency decreases as the number of the financial sectors that are supervised by the central bank increases. Additionally, banks operating in countries with greater unification of supervisory authorities are less profit efficient. Finally, central bank independence has a negative impact on bank profit efficiency.

This study examines the effect of regulations on European insurers’ profitability and risk-adjusted returns. We find an inverted U-shaped relationship between return on assets and regulations relating to capital adequacy, accounting and auditing requirements, and disclosures to supervisors. In contrast, requirements related to technical provisions have a negative effect on return on assets, and we find no evidence of an association with regulations related to investment and supervisory power. We also find evidence of an inverted U-shaped relationship between a firm's risk-adjusted rate of return and regulations relating to capital requirements as well as corporate governance and internal control. We observe the opposite in the case of technical provisions. These results are robust to controls for various country-specific attributes such as macroeconomic environment, stock market development, overall quality of institutions, and legal origins.

Over the last fifteen years, many countries introduced reforms into the supervisory architecture of their financial sector. However, there is no evidence on whether specific supervisory arrangements were more successful than others during the crisis. Empirical evidence on the topic is in general scarce and there are reasonable theoretical arguments for and against alternative approaches. Similarly, while the effect of central bank independence on price stability has attracted a lot of attention, our knowledge with regards to its effect on bank soundness remains limited. Using a large sample of commercial banks operating in various countries over the period 2000–2011, this paper investigates whether and how bank soundness is influenced by central bank independence, central bank involvement in prudential regulation, and supervisory unification. We find that central bank independence exercises a positive impact on bank soundness, which in the case of smaller banks is enhanced during the crisis. Supervisory unification and the central bank involvement appear to mitigate the adverse effects of the crisis. The power of the supervisory authorities and bank size also appear to be conditional factors.