These and other issues related to the role, responsibilities and governance of central banks are discussed in the paper Governing the Governors: A clinical study of central banks, drafted by Lars Frisell, Kasper Roszbach and Giancarlo Spagnolo. A yet unpublished draft manuscript was issued in August 2006. 4  Charles Goodhart: The Organisational Structure of Supervision; FSI Occasional Papers No 1, Nov. 2000. 4  BIS Review 49/2007  banking supervision is weakened when resources are transferred and when skilled banking supervisors leave the authority. Another argument is that a unified supervisory authority could become stronger and thus more independent than the individual authorities. I would argue that the issue of independence is not related to the unification of supervision. Independence could equally be given to a small standalone supervisory authority as to a unified large one. Is there an urgent need to change your supervisory structure? Let me turn to another aspect. Is there any urgency to change to unified supervision or could you wait? The main argument for changing is when the non-bank financial sector is expanding rapidly and is taking a significant market share. Consolidated supervision is then needed to ensure that all risks to the financial groups and markets are taken into account. We see some development in this direction in almost all countries. The financial sector is expanding and introducing new instruments and activities. The boundaries between banking, securities operations, and insurance business are becoming blurred. In many countries this is a slow process, but in others it moves faster.

There are arguments against changing the supervisory structures in the near term. The first one is the flip-side of the argument above. Also the banks are getting larger and more complex. In many countries they still dominate the financial sector and the payments system. Hence, society has a clear interest in strong banking supervision to avoid costly bank failures. We should take into account that banking supervision in many countries functions quite well, while supervision of the other financial sectors is much weaker. Major structural changes involving bank supervision will therefore hamper the conduct of such supervision for a long time due to the focus on the transition rather than on the operations. There is also an obvious risk that qualified staff will leave bank supervision due to the less attractive work prospects outside the NCB. For instance, government salaries and other benefits are usually not as good and it is less prestigious to work outside the NCB. The result would be weaker bank supervision without compensating improvements in other sectors. There are other ways of meeting the challenge. Many countries have instituted arrangements for closer cooperation between the supervisors. Memorandas of Understanding have been drafted so that information may be shared without legal or other impediments. Joint forums have been established where representatives from the different supervisory authorities meet regularly. Cross directorships imply that high level supervisors sit on each others’ Boards and can inform themselves of developments.