Regulation versus market discipline in banking supervision: An overview — Part 2

Jacques Sijben concludes his two-part paper on global banking supervision. The text focuses on the optimal institutional design of bank supervision, which aims to strengthen the market discipline in the banking industry and to achieve a ‘new financial architecture’ to enlarge financial stability in the world economy. In this context special attention is given to the Benston-Kaufman proposal, which aims at a prompt and credible corrective action of the supervisor as soon as capital, including subordinated debt, falls within certain critical limits. In this strategy to enlarge market discipline, an important issue refers to the availability of information and transparency for both supervisors and market participants aiming at an appropriate judgement of the soundness of the banks.