Accountability of IRAs across policy sectors

The banking regulation and supervision agency

The Banking Regulatory and Supervisory Authority (BRSA) is an important case within the Turkish IRAs as it has improved its accountability while mostly sustaining its de facto independence (EC 2010: p. 55; Ozel 2012). It was founded in 1999 by the new banking law (No. 4389) linked to a disinflation program enacted under the surveillance of the IMF. Despite the role of IMF conditionalities in the establishment of the BRSA, the agency was subject to major interventions in its initial years (Ozel and Atiyas 2011; Sezen 2003). However, rules about its independence, accountability and transparency became stricter with the changes required by the 2005 Banking Law (No. 5411). This law set new rules for the authority scheme and procedures of the BRSA, helping to improve accountability (Sosay 2009).

Principles and rules with respect to BRSA's upward accountability vis-a-vis the executive, legislature and judiciary are clearly defined in respective laws: it is required to report annually to the Council of Ministers with activity reports along with strategies and recent developments; and to the Planning and Budget Commission of the National Assembly about its activities, financial tables and the budget. The agencies' responsibilities for accountability are more clearly defined in Law No. 5411 enacted in 2005, compared to Law No. 4389 enacted in 1999.9 BRSA mostly undertakes these responsibilities in practice.

According to Law No. 5411, the minister of finance brings BRSA's transactions to a commission formed by the inspectors of the Court of Accounts, Prime Ministry and Finance Ministry, then prepares a report to be submitted to the Council of Ministers together with the activity report of the BRSA.10 The aforementioned law dictates the content of the annual activity report: actual and probable effects of activities on the market players and the public, along with future targets.11 BRSA is required to send a copy of its final budget to the Ministry of Finance. The external auditing of the BRSA is undertaken based on Law No. 5018 on Public Finance Management and Control. The agency may also work with an independent auditing company whose report is submitted with the activity report.

Compared to the other agencies, the BRSA has higher levels of downward accountability vis-a-vis the stakeholders as well. Consultation mechanisms between the agency and the regulatees work fairly effectively by means of joint commissions. However, this dynamic has taken a highly narrow quality because of the increasingly concentrated interests in the sector and the exclusion of the consumers from downward accountability mechanisms.

When transparency is considered as a mechanism contributing to downward accountability, BRSA's transparency has increased over time. Article 97 of Law No. 5411 (entitled Transparency and Accountability) puts forward that the agency must publish its activity reports along with its accounts, announce those to the public, and inform the public about developments in the sector including the performance of the banks, risk management policies and new regulations through its website.12 Although there is no clarity as to the rules about economic analyses and forecasts, the Sectoral Assessment Report, Financial Market Report, Banking Sector Risk Appraisal Report and Strategic Plans are published on the website of the agency. Despite these rules, the same law generates a discretionary space regarding publication of information that would be relevant for the 'national economy and the public order' without adequately clarifying the content.13 The BRSA's board uses such discretion in (not) publishing justifications for the votes. According to a former board member, 'BRSA has no vision of transparency, as it has internalized the culture of the Turkish state'. Current board members, however, assert that 'there is no agency in the world which is more transparent than the BRSA.'14

Nonetheless, if consumers' and their associations' voices, as well as platforms to respond to concerns, are taken into account, the BRSA's downward accountability appears to be highly limited. Consumer associations are not incorporated into decision-making or oversight mechanisms, thus they do not have a voice in the agency's decisionmaking processes. Several disputes brought by the consumers' associations have not been resolved in favour of the associations' demands. Since the establishment of the regulatory framework in Turkish banking, a major restructuring has taken place, with 14 banks taken over between the years 2000-2003, in addition to capitalization of the banks and restructuring of foreign liabilities. Consequently, capital structures of banks improved significantly and non-performing loans declined (Bakir and Oni§ 2010). Despite such 'good' outcomes, regulations resulted in various negative outcomes as well, including excessive prudency and higher levels of capital concentration. Credit crunch for small and medium enterprises could not be resolved, while consumer credits have increased further. Therefore, the regulatory framework, which has been fairly successful in bringing financial stability, has largely failed to protect the interests of the consumers and promote competition. Additionally, State Audit Board reports emphasize BRSA's ineffectiveness in executing monetary fines (either no or insufficient amounts are applied), thus thwarting the deterrent effect.15

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