Institutional Design of Banking Supervision in Central and Eastern Europe and Party Politics

Chapter 1 presented two contrasting approaches to banking sector supervision. First, market-based regulation was prevalent in the decades leading up to the 2008 global financial crisis. This approach is based on the assumption that if sufficient information is available on the marketplace, market discipline will force financial actors to behave responsibly, and will thus promote financial stability (Barth et al. 2006; Wymeersch 2009; de Haan et al. 2012). Second, according to the risk- averse counter-cyclical regulation approach that gained more traction after the global financial crisis, bank supervisors need to take proactive measures when they observe vulnerabilities in the banking system (Grabel 2007; Goodhart and Persaud 2008; Griffith-Jones et al. 2009).