The SRB Chair Elke König published an article in Views: The Eurofi Magazine. In the article, she highlights the diversity the banking systems in Banking Union and points out that diversity in national rules must be dealt with to facilitate mergers and acquisitions. Consolidation in the banking market is a way to "remove overcapacity and ensure greater profitability." Overall, the regulatory landscape should facilitate, as much as possible, the natural behavior of a free market in the European banking sector.
In the article, Ms. König mentions that Banking Union is "a diverse mosaic of small and complex financial institutions" and the structure of individual markets in the Banking Union varies hugely. Therefore, regulation and supervision have to cope with the variety of business models. The important thing from a financial stability point of view is that small banks and big banks have sustainable business models. Consequently, regulation must be proportionate, as there is no “one size fits all.” Furthermore, in a single market, the diversity in national rules has to be overcome to facilitate mergers and acquisitions. A good regulatory framework can facilitate this, but of course, the role of the regulator is not to ensure every bank can make a profit. Every bank, big and small, must be in a position to comply with the regulatory standards and bear the cost that is inherent in the safety net that regulation provides to society.
The article points out that there is also work to be done in harmonizing insolvency procedures. The Banking Union has 19 different insolvency procedures; therefore, banks and their investors will have to contend with, and learn about, many different legal systems just to invest in a market that is outside their home member state. The single market has still a way to go. There probably is a need for consolidation in the European banking market to remove overcapacity and ensure greater profitability. The article reinforces that a completed Banking Union and a full Capital Markets Union would be a solid framework so that the markets can be left to play their part, strengthening the sector going forward and thus helping to promote financial stability.
Related Link: Article
Keywords: Europe, EU, Banking, Securities, Banking Union, Capital Markets Union, Regulation and Supervision, Financial Stability, Eurofi, SRB
Previous ArticleEBA Single Rulebook Q&A: Third Update for June 2019
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.