Building Effective European Banking Supervision


CALL: 2019

DOMAIN: IS - Development and Performance of the Financial Systems


LAST NAME: Howarth



HOST INSTITUTION: University of Luxembourg

KEYWORDS: European Banking Authority; European Central Bank; Bank Regulation; Bank Supervision; Single Supervisory Mechanism; Banking Union

START: 2020-09-01



Submitted Abstract

The rise of cross-border banking without effective coordination of national banking supervision undermines the pursuit of banking system stability and increases the potential of supervisory arbitrage. There now exist two European Union (EU) supranational bodies which have been created over the past decade to foster convergence in supervisory practice in the EU — specifically through the application of the EU’s ‘Single Rulebook’ approach to credit institutions. These are the European Banking Authority (EBA), involving all EU national supervisors (national competent authorities, NCAs); and the European Central Bank (ECB) at the head of the Single Supervisory Mechanism (SSM), involving at present only euro area member states. Three ‘hub-and-spokes’ relationships have been created: the EBA and NCAs; the ECB and all EU NCAs with regard to the supervision of the largest banks (significant institutions, SIs) headquartered in the euro area; and the ECB and NCAs with regard to the supervision of smaller banks (less significant institutions, LSIs) headquartered in the euro area. Despite on-going efforts to converge national supervisory practice, considerable divergence remains. This interdisciplinary research project (political science, law and financial economics) seeks to examine whether the EBA and ECB have sufficient institutional capacity to ensure a supervisory level playing field to match the EU’s efforts to ensure a regulatory level playing field. A potential discrepancy between regulatory and supervisory playing fields undermines efforts to tackle the fragmentation of the single market for banking services, which could further undermine the stability of already fragile European banking systems. The research project examines in greater detail the operation of four NCAs — Germany, France, the Netherlands and Luxembourg — and three major elements of bank supervision where significant divergence continues despite efforts to harmonise national practice.

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