Twin peaks and central banks : economics, political economy and comparative analysis

The Global Financial Crisis (GFC) highlighted the importance of establishing prudential architectures to address problems of financial stability. Among the different supervisory regimes, the Twin Peaks model (TPM) has attracted an increasing degree of attention.1 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.2 In other words, from the point of view of economics, the key question is to determine central bank involvement in the Twin Peaks model; the more the central bank is involved, the more it is likely to become – de jure or de facto – the lead supervisor.