THE ROLE OF CENTRAL BANKS IN FINANCIAL SUPERVISION AND REGULATION

This article describes thinking on the institutions of financial supervision and regulation prior to the current crisis and goes on to examine what lessons have been learnt subsequently. It concludes that the problem is not so much that central banks needed to be more closely involved in supervision at the outset but that many countries did not have satisfactory schemes in place for resolving problems in large institutions. Central banks and governments were then forced into ad hoc measures that could have unfortunate implications for moral hazard in the future unless fundamental problems are addressed.