Institutional structures of financial sector supervision, their drivers and historical benchmarks

• We study financial services supervisory structures over the past decade for 98 countries.
• Countries integrate supervisory structures as their income and public governance improve.
• Small open economies exposed to liquidity risk integrate prudential supervision relatively more.
• Experience of financial crises encourages greater integration of financial services supervision.
• Concentrated and profitable banking sectors resist integration of business conduct supervision.

This paper studies institutional structures of prudential and business conduct supervision of financial services in 98 high and middle income countries over the past decade. It identifies possible drivers of changes in these supervisory structures using the panel ordered probit analysis. The results show that (i) more developed, small open economies with better public governance tend to integrate their supervision, especially the prudential one; (ii) more financially developed countries integrate more their supervision; however, greater development of the non-bank financial system leads to less integrated prudential supervision but not business conduct supervision; (iii) the lobbying power of concentrated and highly profitable banking sectors significant hinders business conduct integration; (vi) countries that experienced financial crises integrate their supervisory structure relatively more and (v) greater central bank independence could cause less integration of prudential supervision, but not necessarily of business conduct supervision.