4 - Twin Peaks and Central Banks

Summary

One of the fundamental issues in implementing the Twin Peaks regime is deciding where the prudential supervisor should be housed, given that so far three options have been explored; namely, the prudential supervisor could be outside the central bank, or be a subsidiary of the central bank, or be completely inside the central bank. In this regard, a key question is the nature and extent of central bank involvement in the Twin Peaks model. The aim of this chapter is twofold: first, it offers a systematic review of the economics and politics of central bank involvement in a Twin Peaks regime. Secondly, it analyses the central bank’s position in the countries that have already adopted the Twin Peaks model in order to better understand how the general theoretical and empirical results already obtained in exploring central bank involvement in supervision can be applied in analysing the actual Twin Peaks regimes.