Working Papers

The U.S. financial system has changed significantly over the last several decades without any major structural changes to the decentralized financial regulatory system, despite numerous proposals. In the past decade, many countries have chosen to consolidate their regulators into a newly formed "single regulator" or have significantly reduced the number of existing regulators in order to form a regulatory structure that more closely mirrors the current financial system — one that is increasingly dominated by large financial conglomerates. This paper reviews the advantages and disadvantages of regulatory consolidation, explores the effects of consolidation on regulators' incentives, and evaluates which entity is best suited for this role – whether it be a newly created entity or an existing one, such as a central bank. Additionally, this paper reviews the transitions to consolidated regulation that took place in the U.K., Germany, Japan and Australia and finds that despite significant consolidation, complex systems with multiple entities remain. These countries removed most regulatory authority from their central banks, yet there may be reasons not to make such a change.