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?