Featured Product

    ECB President on Realizing Benefits of Integrated European Supervision

    September 18, 2018

    At the ACPR Conference on Financial Supervision in Paris, the ECB President Mario Draghi outlined the benefits of banking supervision in Europe and examined ways to improve European supervision to foster banking integration. He also emphasized that progress in completing the Banking Union—namely, first harmonizing options and discretions (O&Ds), completing resolution, and laying groundwork for the creation of an effective deposit insurance—is essential.

    Mr. Draghi described the three important benefits of European supervision that have been instrumental in making banks more resilient: it harmonizes supervisory practices, adopts a system-wide perspective when monitoring and mitigating risks, and reduces fragmentation in the supervisory framework. While discussing the benefits of European supervision when compared with the fragmented system of national supervision, he highlighted that European supervisors have identified 175 O&Ds available under the EU law; out of these, 130 O&Ds are available to national supervisors and are applied in a uniform way across the euro area. More harmonized rules have helped rebuild confidence in banks and reduce compliance costs for cross-border groups. However, the remaining O&Ds exercised by the national legislation still stand in the way of a level playing field for banks; thus, further legislative action is still needed. He added that harmonization of national insolvency rules is needed to make European resolution more effective.

    Next, he discussed the two "important obstacles that exist in the area of supervision." The first is related to legacy assets, which have weighed on cross-border lending and which include non-performing loans (NPLs) and level 2 and 3 exposures. Although, over the past three years, the NPL stock of significant banks decreased by one third, NPL ratios of euro area banks are still higher than those of U.S. banks. Further efforts are needed from banks, supervisors and regulators to reduce the remaining stock of NPLs, especially in those countries where the NPL ratio remains high. European supervision also needs to continue and extend its work on the valuation of level 2 and 3 exposures.

    According to Mr. Draghi, the second obstacle to cross-border integration lies within the prudential framework. Regulatory capital cannot be freely allocated across subsidiaries of cross-border groups. Banks are required to comply with capital requirements on a standalone basis and waivers can only be applied to domestic banking groups. While the free movement of liquidity across borders is made possible by cross-border waivers, the practical application of these waivers is hampered by the remaining national prerogatives in the regulatory framework, which allow national authorities to apply large exposure limits on intragroup lending and ring-fence liquidity. The free movement of funds is a precondition for a single banking market.

    Among other regulatory factors that are hampering cross-border integration, the international regulatory framework does not treat the euro area as a single jurisdiction for the purposes of calculating capital surcharges (global systemically important bank, or G-SIB, buffers). Intra-euro area cross-border loans from euro area banks are considered foreign loans, leading to higher systemic risk scores and capital requirements relative to their international peers. Therefore, it is crucial that reforms to complete the Banking Union do not lose steam, so that the euro area can be treated as a single jurisdiction in the international G-SIB framework. In conclusion, the ECB President reiterated the importance of completing the Baking Union and added that he is "confident that significant steps in this direction will soon be taken."


    Related Link: Speech

    Keywords: Europe, EU, Banking, Banking Union, Single EU Jurisdiction, Options and Discretions, NPLs, G-SIBs, ECB

    Related Articles
    News

    OSFI Outlines Prudential Policy Priorities for Coming Months

    OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    BIS Announces TechSprint on Innovative Green Finance Solutions

    Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.

    May 06, 2021 WebPage Regulatory News
    News

    EBA Proposed Regulatory Standards for Central Database on AML/CFT

    EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.

    May 06, 2021 WebPage Regulatory News
    News

    ECB Responds to EC Consultation on Crisis Management Framework

    ECB published its response to the targeted EC consultation on the review of the bank crisis management and deposit insurance framework in EU.

    May 06, 2021 WebPage Regulatory News
    News

    ACPR Publishes Version 1.0.0 of RUBA Taxonomy

    ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    BCBS, CPMI, and IOSCO to Survey Market Participants on Margin Calls

    BCBS, CPMI, and IOSCO (the Committees) are inviting entities that participate in market infrastructures and securities markets through an intermediary as well as non-bank intermediaries to complete voluntary surveys on the use of margin calls.

    May 05, 2021 WebPage Regulatory News
    News

    ECB Amends Decision on TLTRO III

    ECB published Decision 2021/752 to amend Decision 2019/1311 on the third series of targeted longer-term refinancing operations or TLTRO III.

    May 05, 2021 WebPage Regulatory News
    News

    Central Bank of Ireland Issues Draft Template for AnaCredit Reporting

    The Central Bank of Ireland published Version 2.7 of the draft credit data template and rules for monthly AnaCredit reporting by banks.

    May 05, 2021 WebPage Regulatory News
    News

    OSFI Consults on Revisions to BCAR and Leverage Requirements Returns

    OSFI proposed revisions to the Basel Capital Adequacy Reporting (BCAR) and leverage requirements returns for the 2023 reporting, with the comment period ending on July 09, 2021.

    May 04, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Revisions to Nonperforming Loan Data Templates

    EBA published a discussion paper on review of the standardized nonperforming loans (NPL) transaction data templates, along with the proposed revised NPL data templates.

    May 04, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6936