Who Pays for Banking Supervision? Principles and Trends

This paper focuses on the financing of banking supervision. Using data collected through a questionnaire sent out in 2005 to a large number of banking supervisors, countries are classified according to who finances banking supervision – the tax payer and/or the supervised industry and how the budget and fees are determined. The issue is important because the financing regime may affect the behaviour of the supervisor and hence the quality of supervision. Regulatory capture, industry capture and the supervisor’s self interest may affect supervisory policy. As the financing regime is one of the dimensions of supervisory independence, supervision policy may depend on who pays for supervision. We show that funding regimes differ across countries. Public funding is more often found when banks are supervised by the central bank, while supervision funded via a levy on the regulated banks is more likely in the case of a separate financial authority. Finally, some countries apply mixed funding. In general, there seems to be a trend toward more private funding. We supplement our data on the financing regime with information on relevant accountability practices and we observe a relation between sources of financing and accountability arrangements. Public financing seems to be associated with accountability towards Parliament, while private sources of financing seem to go hand in hand with accountability towards government. As it is to be expected that financial regulation will become more internationally organized in the future, the financing issue is even more relevant