Towards a Banking Union in the EU |

Towards a Banking Union in the EU

20121121_Petr_Blizkovsky_w170Petr Blizkovsky outlined that the current economic crisis haranguing the Eurozone showed that a single currency and monetary policy authority did not guarantee the existence of a stable banking sector. Candid interaction marked the public lecture, between Blizkovsky, who was Michael Matthiessen’s, the event’s chair, predecessor in 2011 and 2012, as well as many in the audience who were already familiar with him. 

The crisis demonstrated that national surveillance of a now-transnational banking industry was not a practical arrangement. Instead, the current need is the creation of a sole supranational banking or financial authority within the EU, independent of any national government.

The objectives of this new establishment were straightforward: to reduce the probability of bank failures and to prevent the need for excessive state intervention into the financial system.

EU member states are encouraged to adopt a single rulebook harmonising all supervisory rules and practices. Eurozone members are to opt in to a single banking supervising authority under the purview of the European Central Bank (ECB). This was to become the sole authority by which to monitor and recommend action against financial institutions to maintain stability of the financial system in the Eurozone.

Prior to initiating this mechanism, the EU had already established a European Stability Mechanism (ESM) aimed at maintaining the stability and viability of the financial system. The current proposed system is intended to unify decision-making of which banks would be bailed out, or not, by one body. Blizkovsky made clear that, under this system, only members who subscribe their sovereign supervisory powers had access to the ESM.

The supervision board is supposed to be composed of board members from the ECB and the seventeen members of the Eurozone.This was to ensure a neutral decision-making process and reflect the charge that supervision was a Europe-wide responsibility. The supervisory mechanism is targeted to commence its work next year, with complete supervision of all six thousand European banks by 2014.

Blizkovsky closed by mentioning that the creation of a common financial supervisory committee for the Eurozone is an initiative comparable with the establishment of the common currency. Both help raise the financial and economic stability and credibility of the region as a whole.

In the question-and-answer session, concerns were raised whether establishing a new committee would be sufficiently credible to meet its goals. Some reasons for this scepticism included the fact that regulators were often established in response to crisis, and it remains vague if they do lead to stable circumstances. Another is the ambiguity surrounding the degree of accountability and influence of sovereign entities in setting up the regulator.

In response, Blizkovsky expresses optimism; this would not be an issue as the new committee is designated as an independent body which supersedes national authority. Once a member state has agreed to come under the purview of the authority, it defers to the regulatory authority to police its domestic financial system. The parallel drawn here is with removing individual monetary policy-making power. Also, no individual sovereign interests will be involved as no financial transfers from any states are involved with the supervisory authority. The ESM can only be used after the mechanism is established.

Commercial aspects were also raised on how the single banking supervisor could affect the running of global financial markets. Introducing new sets of rules were similar to policies that led to market segmentation. The concern is that while greater stability is the objective, it may also have a reverse effect of increasing entry barriers (such as the use of different reporting or accounting standards) for banks and financial institutions into the Eurozone.

Blizkovsky responded by saying the main purpose of the regulator was to ensure greater stability in the region and to minimise entry restrictions. Alongside its creation, the EU is also looking to harmonise financial reporting standards with the rest of the world to both increase stability and lower barriers to entry.

In essence, stability and harmonisation are the key goals of establishing a supranational banking regulator, a key step towards the concrete establishment of a banking union in the EU.

 

On 21 November 2012, Dr. Petr Blizkovsky, Director, Economic and Regional Affairs, General Secretariat of the Council of the European Union, gave a lunchtime talk entitled “Towards a Banking Union in the EU” at the LKY School. The public lecture was chaired by Mr. Michael Matthiessen, the EU Visiting Fellow at the School for 2012-2013.

UPDATE: On 13 December 2012, the Eurozone agreed for bank supervision to come wholly under the ECB. 

 

By , a Research Fellow at the LKY School.

 
Synopsis:

The economic governance of the European Union is evolving rapidly in reaction to the sovereign debt crisis in some EU Member States. One of the building blocks currently under preparation is the creation of an banking union. This should be built on four elements: a single rule book for all the financial services in the 27 EU Member States; and, for the 17 euro area Member States, a banking supervision mechanism, a resolution mechanism, and a deposit guarantee scheme. This package would represent a major shift in EU governance and thus reinforce the economic and monetary union.

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Speaker(s):

Dr. Petr Blizkovsky, Director, Economic and Regional Affairs, General Secretariat of the Council of the European Union

Date:
Wednesday, 21 November 2012
Time:
12.15 p.m. - 1.30 p.m.
Venue:

Seminar Room 3-4
Level 3, Manasseh Meyer
Lee Kuan Yew School of Public Policy
469C Bukit Timah Road
Singapore 259772

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