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Regulatory capture and banking supervision reform

Journal of Financial Stability 2012 8(3), 206-217
We analyze whether banking supervision responsibilities should be concentrated in the hands of a single supervisor. We find that splitting supervisory powers among different supervisors is a superior arrangement in terms of social welfare to concentrating them in a single supervisor when the capture of supervisors by bankers is a concern. This result has implications for the design of banking supervisory architecture and informs current reform efforts in this field.