Unitary regulatory supervision or multi-entity supervision? A computational approach to a numbers problem in financial regulation
Article first published online: 22 NOV 2010
© 2010 Blackwell Publishing Asia Pty Ltd
Regulation & Governance
Volume 4, Issue 4, pages 435–464, December 2010
How to Cite
Cole, B. M. and Banerjee, P. M. (2010), Unitary regulatory supervision or multi-entity supervision? A computational approach to a numbers problem in financial regulation. Regulation & Governance, 4: 435–464. doi: 10.1111/j.1748-5991.2010.01089.x
- Issue published online: 22 NOV 2010
- Article first published online: 22 NOV 2010
- Accepted for publication 12 September 2010.
- N-K model;
- supervisory entity
Policymakers globally have debated (and often implemented) the idea of consolidating numerous financial regulatory supervisory entities into one unitary entity. This article uses a computational model to explore the effect such a decision would have on supervisory performance. Using insights from organizational scholarship on consensus-making among individuals within organizations, the simulation suggests that under most conditions a unitary supervisory entity yields lower performance than smaller, numerous entities with unique mandates, keeping the number of regulatory inspectors constant. This result arises from the heterogeneity of perspectives being shared within the entity and the influence of precedent actions. The results also show a decreasing utility to disaggregation: performance decreases when too few inspectors share among themselves in building consensus. When insufficient heterogeneity within supervisors exists, unitary frameworks outperform multi-entity frameworks. These findings have implications on the design of supervisory frameworks and contribute to research on consensus-building, heterogeneous group membership, and computational modeling.