Europe Reaches Agreement on Banking Supervisor: Curse or Blessing?

Europe Reaches Agreement on Banking Supervisor: Curse or Blessing?

On 12-12-2012, the European Economic and Financial Affairs Council (the Ministers of Finance of the European Union (EU)) reached an agreement* on 2 proposals aimed at establishing a Single Supervisory Mechanism (SSM) for the oversight of EU banks ('credit institutions').

The European Central Bank will play a central role in this new external governance system targeted at Europe's largest financial institutions, as will the European Banking Authority.
All banks having total assets of over 30 billion (around 200 banks) will be subject to this new supervisory system. But the supervisor could also take action towards smaller banks, when it considers that necessary.

The ECB's monetary tasks would be strictly separated from supervisory tasks to eliminate potential conflicts of interest between the objectives of monetary policy and prudential supervision. To this end, a supervisory board responsible for the preparation of supervisory tasks would be set up within the ECB.

The ECB will assume its supervisory tasks within the SSM on 1 March 2014 or 12 months after the entry into force of the legislation, whichever is later, subject to operational arrangements.

Makes me wonder: is this a sensible approach to restore the trust of the financial markets and try to avoid future financial black swans? Isn't all of this a logical consequence of the globalization process of the last decades: businesses and banks are now operating internationally, so we must also have an international supervisor...

Or is this new institution coming too late (we already have an economic crisis started with irresponsible investing behavior by banks)? And moreover, shouldn't we rely on the efficiency of markets to take care of things automatically and isn't this a classical case of collective cognitive bias (illusion of control)? Is bigger always better?

Perhaps we should split up all global large banks into many smaller banks to avoid systemic risk ("too big too fail" or "too interconnected to fail") and let the markets take care of the rest.
I'm feeling a bit confused, what about you?

		Comments Sort by date Sort by rating Rating
		3 Huw Morris Management Consultant, United Kingdom
	Growing Institutions ......... My sense is that this is a necessary enhancement of governance arrangements. I have to say that I ha... Sign up

		5 KATHRYN STEINER, MBA Entrepreneur, United States
	Restructuring Can Be Beneficial for Financial Institutions This is a complex issue-an octopus with many tentacles so to speak. Here in the United States, ther... Sign up

		1 Zoniaina Coach, Madagascar
	European SSM is a 'Long-term Protectionist Measure' Banks operate internationally so an international supervisor must be created... Why not... Wait and ... Sign up

		1 Adonis Business Consultant, France
	Politics versus Economics The project of supervising the main European banks, as conceived at this stage, is not incompatible ... Sign up

		3 Jozef Van Giel Strategy Consultant, Belgium
	Adam Smith in Favour of Regulation of Banks Adam Smith was the godfather of the free market kapitalism. What proponents of deregulation tend to ... Sign up

		3 Len Pretorius Project Manager, South Africa
	Supervisory Governance on Banks Needed Because of Greedy Investors All good intentions and things in life get perverted by the greedy and ambitiously greedy. We allow ... Sign up

		-1 Albert Ofosu Student (MBA), Ghana
	Supervision and Gate Keeping Recent fine of billions of dollars against Barclays bank for "collusion and facilitation of illicit ... Sign up

		1 Aranit Bicaku Albania
	It's a Very Good Thing to have a Central Controller for All the Banks It is necessary to have a central controller for all the banks and the days are over they could deci... Sign up

		0 Pastory Masomhe Analyst, Tanzania
	Economic Liberalization My belief is that any liberalized economy is the most regulated one. To form a single supervisory me... Sign up

		3 Serchen Komba Management Consultant, Ghana
	Efficiency Market Theory Has it Limit Depending on the efficiency of the market, it will take time to correct the crisis because what is h... Sign up

		0 Albert Ofosu Student (MBA), Ghana
	SSM and the European Central Bank The objectives for setting up the SSM role vested in the European Central Bank are laudable. My worr... Sign up