ABSTRACT
This chapter determines factors that historically accounted for the choice of banking supervisor. It discusses theories of banking regulation, and considers the advantages and disadvantages of unified financial supervisory authority and of entrusting the central bank with banking supervision. The chapter explains the emergence of national banks, their development into central banks, and the evolution of banking regulation. A cursory glance at the list of countries that have moved to a unified supervisor suggests a history-based explanation. Among the first countries to move to the unified framework were the Nordic countries in which the central bank has never held supervisory authority over the banking system. The chapter focuses on the evolution of central banks and banking supervision in a sample of 18 currently developed countries in order to discern any patterns among countries. It examines the choices that governments have made, and indicates what sorts of choices they may make in the future.
