Rethinking banking supervision in the EU

Abstract

As the long-standing attempt to create an integrated European banking market is showing signs of success, 1 the costs and benefits of the traditional reliance on national banking supervision-and the (de)merits of alternative arrangements-are receiving attention in a lively literature involving both practitioners and academics. While it is too early to draw conclusions, the current episode of financial distress will shed light on some of the issues involved.The fundamental question is straightforward. Should the growing importance of banks that are multinational not only in terms of their asset base but also in their outlook and business models lead to a fundamental restructuring of supervisory arrangements? Or does the current system, combining reliance on national (mainly home) supervisors with minimum standards, mutual recognition and increasing coordination and information exchange across member-states remain preferable for the time being? If not, what are the alternatives, and the criteria on which decisions should be made?A growing theoretical literature explores the implications of alternative regulatory and supervisory arrangements taking account of the interaction between institutional features, informational issues and incentives structures, inter alia. 2 This literature, exploring implications for both financial stability and efficiency, has yielded valuable insights into the tradeoffs involved in choosing between alternative

Transatlantic banking crisis: analysis, rating, policy issues

“…Broad analysis of key fiscal and monetary policy aspects of the Euro zone has shown mixed results (Ryan and Horsewood 2009;Poghosyan 2009;Hallett and Richter 2009;Koronowski 2009;Langwasser 2009). There also is abroad discussion on enhanced regional cooperation and prudential supervision in the EU (Wolf 2008). A broader issue concerns the dynamics of financial innovations and information flows -the ability to control the diffusibility of knowledge and the degree of turbulence related to obsolescence of knowledge has been identified in the innovation literature as an important element of information dynamics (Boisot et al 2007); this approach could be a useful starting point for a better understanding of financial innovation dynamics and the so far vague role of property rights in the financial sector.…”