EU at Crossroads: How to respond to Misalignments in Bank Regulation and achieve a consistent financial Framework?
As tensions rise around Catalonia's independence movement, there are worries about the impact on the Spanish banking sector. Banks based in Catalonia account for around 14% of total assets. Some major institutions are already moving their headquarters to other parts of Spain. However, most Spanish banks have significant exposure to the Catalan market, and all could be caught up in the turmoil.
The sequence of crisis and policy responses after mid-2007 was a gradual recognition of the unsustainability of the euro-area policy framework. The bank-sovereign vicious circle was first observed in 2009 and became widely acknowledged in the course of 2011 and early 2012. The most impactful initiative has been the initiation of a banking union in mid-2012, but this remains incomplete and needs strengthening.
As deleveraging moves up in the scale of objectives of the Chinese leadership, banks now face more restrictions from regulators. As a result, banks have been very creative in playing the cat and mouse game in front of evolving regulations.
The aim of the banking union was to break the toxic link between banks and states. One way of achieving this is by increasing cross border banking through mergers and acquisitions. This blog shows that little has changed in M&A activity since the banking union was launched. In fact, we seem to be witnessing a slight re-nationalisiation of banking consolidation.
Scandinavian banking giant is moving to Finland. This is not just a flight from increasing taxes and tighter regulation in its current home, Sweden. Nordea is also moving inside the banking union to find a fiscal backstop large enough to see it through any future crisis. Will this vote of confidence encourage Sweden and Denmark to join the banking union?
As the EU enjoys a period of growth and relative stability, there is finally room to undertake long-needed reforms. But it is vital to act soon, and priorities must be set. There are three pillars of reform for the coming months: completing a robust euro area; building a coherent EU foreign policy; and harnessing the single market’s potential to deliver strong and inclusive growth.
While precautionary recapitalisation is a legitimate instrument for bank crisis management, the conditions set for it by BRRD (Bank Recovery and Resolution Directive) are restrictive and have so far been effective to prevent its inappropriate use on insolvent banks. Nevertheless, the European Stability Mechanism should be empowered to participate in future precautionary recapitalisations.
Precautionary recapitalisation, a tool for public intervention in the banking sector defined in the Bank Recovery and Resolution Directive (BRRD), is a legitimate instrument for bank crisis management. The conditions set for it by BRRD are restrictive and have so far been effective to prevent its inappropriate use on insolvent banks. Outside of the scope of BRRD, the co-legislators should consider a reform of the EU audit framework to improve audit quality, and the European Stability Mechanism should be empowered to participate in future precautionary recapitalisations.
As regulators rush to strengthen banking supervision and implement bank resolution regimes, a macro approach to resolution is needed that considers both the contagion effects of bail-in and the continuing need for a fiscal backstop to the financial system. This can be facilitated through the completion of a banking union in which the European Stability Mechanism (ESM) becomes the fiscal backstop to the euro-area banking system.
At this event we looked at the issue of non-performing loans in Europe. The event also saw the launch of the latest issue of "European Economy – Banks, Regulation and the Real Sector."
What can we learn about the Italian banking sector from the decision to liquidate Veneto Banca and Banca Popolare di Vicenza? Silvia Merler sees a tendency for Italy to let politics outweigh economics.