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Building an Integrated Banking Market While Containing Cross-Border Risks

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Building EU Regulatory Capacity

Part of the book series: Executive Politics and Governance ((EXPOLGOV))

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Abstract

The final empirical chapter of the book focuses on a case in which the EU agency (the European Banking Authority, EBA) is particularly limited in its resources, while still producing a staggering amount of technical regulatory standards aimed at the harmonisation national regulatory practices. UK and German regulators (the PRA and BaFin) are willing to invest considerable time and staff numbers to technical-standard setting processes in the EBA because it provides them with an opportunity to influence outcomes in order to adjust technical standards to the particular regulatory challenges they face at home. To retain this influence national regulators have been keen advocates of limiting the staff numbers of the EBA. An organisational approach explains why the capacity of the EU agency capacity is being purposefully limited by national regulators, while they nevertheless support its work.

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Notes

  1. 1.

    The G-10 countries formed a committee as part of the Bank of International Settlements as a consequence. This was the beginning of the Basel Committee on Banking Supervision. For a comprehensive overview of the development and substance of the international framework (see Tarullo 2008).

  2. 2.

    Please note that this chapter is concerned with the management of prudential risk and does not focus on financial conduct and consumer protection since the former is the more pressing cross-border implications.

  3. 3.

    First Banking Coordination Directive of 1977 (Directive 77/780/EC).

  4. 4.

    Ibid., Art. 11. It had acted as comitology and advisory committee.

  5. 5.

    Established by Commission Decision 2004/5/EC.

  6. 6.

    Ibid., Recital 5.

  7. 7.

    Ibid., Recital 4.

  8. 8.

    Art.1,2 and 7 of CEBS Charter.

  9. 9.

    Art.2, Decision 2004/5/EC; Art.3, Decision 2009/78/EC.

  10. 10.

    Art.2, Decision 2004/5/EC; Art.2, Decision 2009/78/EC.

  11. 11.

    Art.14, Decision 2009/78/EC.

  12. 12.

    See Protocol of the CEBS Mediation Mechanism, 25 September 2007. This mechanism then became more formalised in the 2009 reform of CEBS, see Art.19 and Art.21(4) in relation to supervisory colleges, Decision 2009/78/EC.

  13. 13.

    Regulation 1092/2010. The European Systemic Risk Board (ESRB) is another body charged with analysing risk that transcends national and sectoral boundaries. It is under the responsibility of the ECB, and is entirely concentrated on the task of macro-prudential supervision (whereas the ESAs need to focus on macro-, and micro-prudential, and conduct of business supervision) (Art.3, Regulation 1092/2010). In cooperation with the ESAs and national regulators the ESRB is meant to focus on the identification of systemic risk (Ibid., Art.3, Art.15.).

  14. 14.

    Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC.

  15. 15.

    Art.45, 47, Regulation 1093/2010.

  16. 16.

    Ibid.Art.51.

  17. 17.

    Art.1.1, Rules of Procedure of EBA Board of Supervisors.

  18. 18.

    See Board of Supervisor meeting minutes. This was also pointed out by interviewees B12 and B13.

  19. 19.

    Art.10, Regulation 1093/2010.

  20. 20.

    Ibid., Art. 15.

  21. 21.

    Ibid., Art.10, Art.15.

  22. 22.

    Ibid., Recital 23.

  23. 23.

    Interviewee B2 (BaFin official) and B4 (Commission official).

  24. 24.

    Art. 13(3), Regulation 1093/2010.

  25. 25.

    Ibid., Art.15).

  26. 26.

    Ibid., Art.18(4). In order for EBA to hold this power, the Council needs to declare an ‘emergency situation’ and can do so on the basis of a request of the European Commission, EBA or the ESRB (Art.18(1) and (2)).

  27. 27.

    Ibid., Art.17.

  28. 28.

    Ibid., Art.19.

  29. 29.

    Ibid., Art.21(1).

  30. 30.

    Ibid., Art.21(2)(e).

  31. 31.

    Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions.

  32. 32.

    Eurozone countries are required to participate in the SSM , while non-Eurozone countries can opt-in to it. At the time of writing no non-Eurozone member country had opted to do so.

  33. 33.

    Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010.

  34. 34.

    Interviewee B4.

  35. 35.

    See Financial Services Act 2012.

  36. 36.

    For an overview of the development of the German and British regimes (see Moran 1991, 1994; Müller 2002).

  37. 37.

    See Liquidity Coverage Ratio (LCR) and Net Stable Funding Ration (NSFR) under Basel III.

    Interviewees have at least partly attributed this to the political level which has come to see banks as incapable of managing their own risks after the crisis.

  38. 38.

    Interviewee B2, B5, and B6. Also see FSA speeches, such as Adair Turner’s Mansion House Speech on 20 October 2011, or Hector Sants’ speech at the Cityweek Conference on 7 February 2012. Also see Ferran (2012, p. 18). In this regard, the UK’s approach (especially after the crisis) has been aligned with the US and Switzerland (which is also characterized by a financial ‘giants’ that are very large in relation to the economy of the country as a whole) (ibid.).

  39. 39.

    As, for example expressed in BaFin’s tools in ‘MaRisk’ (‘Minimum requirements for risk management’) which assesses a bank’s risk management processes. See, for example, AK BA (2010, p. 6).

  40. 40.

    For example, when the former head of BaFin’s banking unit (Helmut Bauer) left the authority to work for Deutsche Bank in regulatory affairs, the German media reported on this with a critical angle (see Spiegel Online, 19.01.2008, ‘Pikante Personalie: Banken-Aufseher wechselt zu Deutscher Bank’). Reportedly, this was also heavily criticised in the German industry as a former supervisor—who is familiar with business models etc. of banks—was going to work for one of their competitors.

  41. 41.

    Speech by Hector Sants, then Chief Executive of the PRA, to the BBA entitled ‘The Future of Banking Regulation in the UK’, BBA Annual Conference, Guildhall 2011.

  42. 42.

    Interviewee B2.

  43. 43.

    Interviewee B5.

  44. 44.

    Interviewee B2, the German original was expressed as “wer schreibt, der bleibt”.

  45. 45.

    Also, see AK BA (2010b, p. 8), AK BA (2011, p. 8) for Germany, and FSA (2010, p. 12) for the UK.

  46. 46.

    Interviewee B2.

  47. 47.

    Interviewee B9.

  48. 48.

    See Recital 4 of Regulatory Technical Standard on Own Funds Requirements. Also see AK BA (2009, p. 4), AK BA (2010, p. 6) for German regulatory position.

  49. 49.

    Also, all interviewees pointed this area out has being particularly difficult to come to agreements on.

  50. 50.

    COREP refers to the common reporting of supervisory information, such as the reporting of own funds by banks to supervisors. FINREP refers to the reporting of financial accounting data (including the balance sheet) by banks to their supervisors.

  51. 51.

    Interviewee B12.

  52. 52.

    For example, see speech by Andrea Enria entitled ‘The future of EU regulation’, 29 June 2011, London.

  53. 53.

    As expressed by Interviewee B4.

  54. 54.

    Speech by Jochen Sanio, then president of Bafin, entitled ‘Die Fortentwicklung der Bankenaufsicht‘, at the Conference ’Corporate Governance bei Banken‘, KPMG Audit Committee Institute, Frankfurt am Main, 28 May 2009. Original in German, translated by the author. Also, see FSA (2009, p. 99), for expression of the same problem from a practitioner’s point of view.

  55. 55.

    Interviewee B1.

  56. 56.

    Speech by Andrea Enria, Chairperson of the European Banking Authority, at the 4th Santander International Banking Conference, Madrid, 18 October 2011.

  57. 57.

    Speech by Andrea Enria, Chairperson of the EBA at the time of writing, at the 4th Santander International Banking Conference, Madrid, 18 October 2011.

  58. 58.

    Ibid.

  59. 59.

    See speech by Arnoud Vossen, then Secretary General of CEBS entitled ‘Towards a New Architecture for European Banking Supervision‘, Euro Finance Week 2009, Frankfurt, Germany. The setting-up of supervisory colleges then became compulsory in the revision of the Capital Requirements Directive.

  60. 60.

    Interviewee B3.

  61. 61.

    Art.21(4), Regulation 1093/2010.

  62. 62.

    See Decision of the European Banking Authority adopting the Rules of Procedure of the Mediation Panel.

  63. 63.

    See Art.21(10), Regulation 1093/2011. Informally, colleges had already invited CEBS Secretariat members to attend some of their meetings before EBA staff was granted this right formerly.

  64. 64.

    As pointed out by Interviewee B1.

  65. 65.

    The empirical analysis presented in this chapter was supported by the following interviews:

    Interviewee B1, industry representative (government and regulatory affairs unit at a major bank). Interview conducted on 11 April, 2013.

    Interviewee B2, official of BaFin (International Policy Division). Conjoint interview with interviewee B3 conducted on 2 May, 2013.

    Interviewee B3, official of BaFin (International Policy Division). Conjoint interview with interviewee B2 conducted on 2 May, 2013.

    Interviewee B4, official of the European Commission (DG MARKT), former observer at CEBS. Interview conducted on 2 May, 2013.

    Interviewee B5, former official of BaFin and the CEBS secretariat. Interview conducted on 2 May, 2013.

    Interviewee B6, former official of CEBS, the FSA and the European Commission (DG ECFIN). Interview conducted on 3 May, 2013.

    Interviewee B7, former official of CEBS and the EBA, official of the Dutch Central Bank. Interview conducted on 10 May, 2013.

    Interviewee B8, former official of the Deutsche Bundesbank (German Central Bank) and representative to CEBS. Interview conducted on 28 May, 2013.

    Interviewee B9, former official of CEBS and the Dutch Central Bank. Interview conducted on 31 May, 2013.

    Interviewee B10, official of the EBA, former official at the Bank of Italy. Interview conducted on 27 June, 2013.

    Interviewee B11, former official of the FSA, BaFin and CEBS, former industry representative. Interview conducted 11 July, 2013.

    Interviewee B12, official of the EBA, former official of the French Financial Markets Authority. Interview conducted on 17 July, 2013.

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  1. Department of Politics, University of York, York, UK

    Eva Heims

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Heims, E. (2019). Building an Integrated Banking Market While Containing Cross-Border Risks. In: Building EU Regulatory Capacity. Executive Politics and Governance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-97577-1_6

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