July 27th 2022

PA.067 | Human Capital in the History of Financial Regulation and Supervision, 19th-21st Centuries

Parallel Sessions
The session seeks to identify the impact of individuals (elites) in the history of financial regulation and supervision. The relationship between human resources and financial regulatory/supervisory system (activities) is examined. The literature on the history of financial supervision has most often focused on the importance of institutions, regulatory regimes, legal systems. However, the implementation and enforcement of financial regulation is in practice done by individual civil servants with discretionary powers over the how, what, when and whom of supervision. How the financial supervision is actually conducted is thus in part a matter of the experiences and competences of the supervisor.
E - Macroeconomics and Monetary Economics
Thibaud Giddey - University of Oxford
Mikael Wendschlag - Department of Economic History, Uppsala University
Eiji Hotori - Yokohama National University
Youssef Cassis - European University Institute
Kazuhiko Yago - Waseda University
Masato SHIZUME - Waseda University
Revolving Door Governance: Bank Supervisors in the United States, 1865-1933
Sean Vanatta - University of Glasgow
Federal bank supervision began in the United States with the enactment of the National Bank Act in 1863. From that point until the banking crises of the 1930s, the leaders of the US supervisory agencies—the Comptroller of the Currency (1863) and the Federal Reserve (1913)— recognized that bank supervisory work was often a stepping-stone to future careers in banking. As Comptroller D. R. Crissinger wrote in 1922, “The best testimony to the high quality and character of the examining force is found in the fact that the bureau has constant difficulty in retaining the services of its skilled examiners because their special qualifications constantly appeal to the best banks, which are continually drafting them away from the bureau at greatly advanced compensation.” Certainly, as Crissinger recognized, this constituted a loss for supervisory agencies, and Comptrollers and Fed officials used the constant drain of experienced examiners to lobby for better supervisory compensation. Yet, as this paper demonstrates, supervisory leaders also understood this process as a net gain for the banking system, which in the nineteenth and early-twentieth century United States had a proliferation of small, unit banks but few well-trained bankers. Indeed, Comptrollers of the Currency often followed the same path, moving from government service into the management of banks they supervised. Ultimately, the paper argues that US financial supervisors practiced “revolving door governance,” where bank supervisors were able to recruit competent staff at low pay on the promise of future banking careers. Examiners, in turn, brought their knowledge and expertise into the banking system. In this way, the paper suggest that the revolving door in early US financial governance is more akin to regulatory schooling than regulatory capture, thought the lines between legitimate transit and unseemly corruption always remained thin and porous.
Japanese financial elites in banking supervision: Ministry of Finance and Bank of Japan, 1927-1998
Eiji Hotori - Yokohama National University
The purpose of this paper is to examine why and if banking supervision system was worsened over the period in question, with focusing on human capital, especially elites, of banking supervision in Japan. Specifically, this paper focuses on the following elements of banking supervision – transition of supervisory policy, organization of supervisory agency, and quantitative profiles (e.g., education, career path, salary, tenure, post retirement) of the heads of supervisory department. In addition, this paper analyzes the performance of several regional banks that accepted the appointment of an ex-Director of the MOF as their president to check whether such an intimate bank-supervisor relationship worsened those banks’ management.
The organizational reform and the financial regulatory reform of the MAS (Monetary Authority of Singapore): 1971-2010
Koji Fuda - Asia University
This study analyzes the organizational reforms and the financial regulatory reforms of the Monetary Authority of Singapore (MAS) from 1971 to 2010, focusing on the roles of key persons and their lieutenants and the organization chart of the financial supervision department (FSD). We also analyze the human resource development policies to support their organizational changes. The MAS split its history into three phases demarcated by two significant restructurings. The first restructuring was in 1981, and the second was in 1998. We investigate the roles of the following key person and lieutenants in each phase; Hon Sui Sen and Albert Winsemius in the first phase, Goh Keng Swee, J. Y. Pillay, and Koh Beng Seng in the second phase, Lee Hsien Loong, Tharman Shanmugaratnum, and John Palmer in the third phase. Our main findings are as follows. First, the MAS chairs, i.e., the government representative in each phase, determined the direction of the financial regulatory reforms according to the economic situation and their economic beliefs. Second, the MAS managing director and the MAS deputy managing director of the FSD reformed the organizational structure according to the financial regulatory reforms. Third, the MAS evolved human resource development policies to manage risk diversification. Finally, the MAS consistently emphasized international relations to acquire front-line knowledge and skills as an IFC regulator and supervisor.
How financial bureaucrats facilitate reforms in China: Politics, professionalism, and financial supervision, 1978–2018
Men Chuang - Osaka University
This study provides a new interpretation of the evolution of China’s financial supervision system from 1978–2018. Contrary to previous studies focusing on the decentralization of government control through market-oriented reform, this study emphasizes the role of financial bureaucrats in the rising power of financial supervisory agencies. Using government administrative documents and the profile data of financial bureaucrats, this study demonstrates how strengthening financial supervision increased the importance of the financial sector in the central government and examines the formation of four ministry-level financial supervisory agencies. In the process, the importance of the People’s Bank of China (PBC) as the central bank significantly increased. The experience of the deputy governor of the PBC plays an important role in the financial supervision. This study attempts to argue that the professionalism of financial bureaucrats played a critical role in increasing the power of financial supervision
Turnover and competence of banking supervisors - the Swedish case between 1907 and 1937
Mikael Wendschlag - Department of Economic History, Uppsala University
Conducting banking supervision requires competence in many areas. It is also a profession that improves with experience. Incompetent supervision undermines the credibility of the banking regulation, and may be one of many explanations to banking crises. However, history shows that staffing banking supervisory agencies has always posed a challenge. Banks may compete for the same staff, often being able to offer higher wages and better career opportunities. The issue has been discussed in the literature. On the one side, losing staff to the banks may improve the industry’s compliance competence, on the other a high staff turnover may harm the quality of the supervision. In this article we analyze human capital of the staff of the Swedish Bank Inspection Board in its first decades in existence, 1907-1937. We are interested in empirically investigating the issues raised in previous research on banking supervision and on financial elites.
Who determined the rules of the game in the Spanish financial reforms, 1970-1990
Maria Angeles Pons - University of Valencia
Joaquim Cuevas - University of Valencia
The aim of this paper is to analyse the Spanish regulatory reforms and to identify the key actors involved in the design and implementation of financial regulation. We examine the educational and professional profile of those at the helm of the main regulatory bodies (Ministers of Finance and the staff of the Bank of Spain) during the transition to democracy. The main hypothesis we wish to test is whether the reforms that took place in the 1970s and 1980s were carried out by people with a substantially different background to the protagonists of the reforms implemented during Franco's regime. Our results show that the change in the regulators’ profile emerged in the late 1950s, with an increasingly influential role of the Bank of Spain's Research Department, and that the reforms of the 1970s and 1980s were carried out by people with a solid academic and professional background, predominantly in economics.
Central bank board members and banking supervisors: the evolution of the socio-professional profile of the banking policy community in Switzerland during the 20th century
Thibaud Giddey - University of Oxford
Banking regulation in Switzerland consists of a system featuring two principal institutions established by the central federal government: the central bank – Swiss National Bank (SNB) – founded in 1907 and the Federal Banking Commission (FBC) – created in 1935. In the field of regulation, the SNB played a crucial role in macro-prudential oversight and general stability of the sector, collecting statistics, adapting its rediscount rates, the FBC, on the other hand, was the agency in charge of micro-prudential supervision, such as the enforcement of liquidity and capital ratios. The contribution focuses on the individuals who were supervising those two institutions and examines the evolution of both SNB and FBC board members between 1907/1935 and 2008. It analyses how the socio-professional status of the banking supervisors and central bank board members evolved during the second half of the 20th century, by examining a few distinctive biographical features: eligibility requirements, appointment process, gender and age, duration of terms, education, socio-economic interests (interlocking directorates), political affiliation and region of origin. First findings suggest that both bodies featured a remarkable stability of the socio-professional profile. The main differences between the SNB board and the FBC lie in the share of economists, the share of members with clear political affiliation, and more globally the representation of significant economic sectors. One striking similarity is the constant presence of former or active bankers representing the dominant players in the financial industry (large banks, cantonal banks, private banks).
How did the IMF evolve into a policy advisor? Back to its initial period
Teru Nishikawa - Yokohama National University
Comparing two groups of international regulators: the Basel Committee and the Banking Advisory Committee of the European Community
Alexis Drach - Université Paris 8
Through a prosopographical analysis of two groups of international supervisors and regulators, the Basel Committee on Banking Supervision between 1975 and 1987 and the European Banking Advisory Committee between 1979 and 1992, this paper explores the specificities of international banking regulation and supervision and the differences and similarities between profiles of regulators and supervisors in different contexts. In both committees, the attention to human capital helps understand the inner workings of international banking supervision and regulation. The paper suggests that analysing the two committees' members careers can cast fresh light on the differences and links between regulation and supervision.