Which Future Model for Europe ?

15-02-2010

The growing integration of European financial markets and the financial crisis of 2007-2009 have raised important questions concerning the institutional design of European financial supervision (1.1). Over fifty large financial institutions have significant cross-border operations in EU states, while wholesale capital markets are increasingly inter-connected across EU states through electronic exchanges and other complex trading systems. Over the last ten years, EU financial legislation has grown dramatically in its scope of coverage and application to many areas of market practice. The implementation and enforcement of this legislation has been left ultimately to the discretion and authority of Member State supervisors based on the principle of home country control and mutual recognition (1.3). Although this legal and supervisory framework facilitated cross-border trade and investment across EU states, the adoption of the euro and the institutional consolidation of the Lamfalussy process has led to calls for further consolidation of supervisory practices at the EU level. Moreover, the recent financial crisis has demonstrated the importance of having a robust macro-prudential supervisory framework and micro-prudential supervisory regime with the objective of controlling systemic risk. The European Commission has proposed a significant institutional restructuring of EU financial supervision that involves the creation of a European Systemic Risk Board to monitor macro-prudential risks and three EU supervisory agencies to adopt a regulatory code and to oversee Member States micro-prudential supervision (2.0-2.3). The Commission proposals, if approved by Parliament, will lead to significant institutional consolidation at the EU level (2.2-2.5). This will bring important changes to the existing EU framework of financial supervision that is based on home country control and mutual recognition. It also has important implications for international supervisory and regulator

The growing integration of European financial markets and the financial crisis of 2007-2009 have raised important questions concerning the institutional design of European financial supervision (1.1). Over fifty large financial institutions have significant cross-border operations in EU states, while wholesale capital markets are increasingly inter-connected across EU states through electronic exchanges and other complex trading systems. Over the last ten years, EU financial legislation has grown dramatically in its scope of coverage and application to many areas of market practice. The implementation and enforcement of this legislation has been left ultimately to the discretion and authority of Member State supervisors based on the principle of home country control and mutual recognition (1.3). Although this legal and supervisory framework facilitated cross-border trade and investment across EU states, the adoption of the euro and the institutional consolidation of the Lamfalussy process has led to calls for further consolidation of supervisory practices at the EU level. Moreover, the recent financial crisis has demonstrated the importance of having a robust macro-prudential supervisory framework and micro-prudential supervisory regime with the objective of controlling systemic risk. The European Commission has proposed a significant institutional restructuring of EU financial supervision that involves the creation of a European Systemic Risk Board to monitor macro-prudential risks and three EU supervisory agencies to adopt a regulatory code and to oversee Member States micro-prudential supervision (2.0-2.3). The Commission proposals, if approved by Parliament, will lead to significant institutional consolidation at the EU level (2.2-2.5). This will bring important changes to the existing EU framework of financial supervision that is based on home country control and mutual recognition. It also has important implications for international supervisory and regulator