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Central bank’s role and involvement in bank regulation: Lender of last resort arrangements and the Special Resolution Regime (SRR)

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  • Ojo, Marianne

Abstract

This paper considers developments which have necessitated greater involvement and a greater role for the central bank in financial regulation and supervision. The aftermath of the 2007/08 financial crisis has witnessed the enactment of legislation such as the Banking Act of 2009 which has not only introduced greater statutory powers for the central bank, but also the Special Resolution Regime. As well as a consideration of arguments which are in favour of the central bank’s role as supervisor and lender of last resort, the importance of central bank independence and safeguards which exist to ensure that sufficient accountability is fostered, will be considered. Safeguards and accountability mechanisms which are adequate, such that, whilst ensuring that the regulator is not susceptible to regulatory capture, do not impede the ability of such a regulator to obtain vital and necessary information from systemically important individual financial institutions. In its support of the view that central banks should assume a greater role in supervision, this paper not only seeks to justify why such a degree of involvement is vital to ensuring and maintaining stability in the financial system, but also those factors which are considered to be necessary if such a role is to be effective.

Suggested Citation

  • Ojo, Marianne, 2009. "Central bank’s role and involvement in bank regulation: Lender of last resort arrangements and the Special Resolution Regime (SRR)," MPRA Paper 33670, University Library of Munich, Germany, revised Sep 2011.
    • Handle: RePEc:pra:mprapa:33670
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    References listed on IDEAS

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    1. Felton, Andrew & Reinhart, Carmen M. (ed.), 2009. "The First Global Financial Crisis of the 21st Century Part II: June–December, 2008," Vox eBooks, Centre for Economic Policy Research, number p199.
    2. Willem H. Buiter, 2008. "Central banks and financial crises," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 495-633.
    3. Erlend Nier, 2009. "Financial Stability Frameworks and the Role of Central Banks: Lessons From the Crisis," IMF Working Papers 2009/070, International Monetary Fund.
    4. Mr. Michael W Taylor & Mr. Marc G Quintyn & Ms. Eva H. G. Hüpkes, 2005. "The Accountability of Financial Sector Supervisors: Principles and Practice," IMF Working Papers 2005/051, International Monetary Fund.
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    Cited by:

    1. Ojo, Marianne, 2009. "Basel II and the Capital Requirements Directive: Responding to the 2008/09 Financial Crisis," MPRA Paper 17379, University Library of Munich, Germany.

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    More about this item

    Keywords

    central; bank; lender; last; resort; regulation; monetary; policy; special resolution regime; Financial Crisis; liquidation; bankruptcy; systemic risks; living wills; bailing in; resolution procedures; deposit protection; liquidity;
    All these keywords.

    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • D0 - Microeconomics - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G01 - Financial Economics - - General - - - Financial Crises

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