Should financial sector regulators piggyback on central bank independence?
Arguably, the simplest way to secure independence for bank regulators and supervisors is to house them in an independent central bank. Because the concept of central bank independence is now generally accepted, financial sector regulators and supervisors could “piggyback” on the autonomy the central bank already enjoys. The chief argument for housing financial sector regulators in the central bank is that banks are the instruments through which the central bank transmits monetary policy to the wider economy. The central bank is therefore naturally concerned with bank soundness as a precondition for effective monetary policy. And because the central bank also acts as a lender of last resort to banks in time of crisis, it should have access to information about the financial soundness of any bank that might apply to it for emergency liquidity assistance. On the other hand, the arguments for keeping financial sector regulators separate from the central bank are equally strong. The first i
