Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
1
Technocratic and Centralized
Decision-making in Banking
Union: A Comment from the
Financial Regulation Perspective
EUI, ...
2
Introduction
 A staging post reached → reflect on recent experience; implications of
centralization of decision-making ...
3
Introduction
 Transformation of EU financial system governance
 Governance system within which institutions and proces...
4
EU Financial Governance
 ESFS
 A network: NCAs (+ ECB); ESRB; ESAs
 Pivotal role of ESAs, but elusive status
 Ex: po...
5
EU Financial Governance
 BU
 Beyond co-ordination; institutionalized support for fiscal risk
mutualization; centraliza...
6
First Order Effects
 Effectiveness of BU decision-making (SSM)
 Defining feature: impact of re-/up-cycling effects and...
7
First Order Effects
 Monetary/supervisory conundrum
 The Supervisory Board; adoption by Governing Council
 Silent ass...
8
First Order Effects
 But..
 Supranational quality (Supervisory Board)
 Constrained operating environment
 Enumerated...
9
First Order Effects
 Early Lessons (SSM)
 Scale of the operational achievement
 Procedural basis; Mediation Panel; Bo...
10
First Order Effects
 But.. movement to ‘business as usual’
 Change of incentives politically within SSM-zone from Com...
11
Second Order Effects
 Multiplicity of BU effects on ESFS
 Ex: Commission position; ESMA incentives
 EBA/BU the most ...
Second Order Effects
 EBA/BU and Supervisory Governance
 Notionally separate: executive v. coordinator
 But supervision...
Second Order Effects
 Early Lessons
 Rule-making Governance
 CRD IV/CRR and EBA credibility/capacity
 EBA as custodian...
14
Second Order Effects
 Supervisory Governance
 The Comprehensive Assessment
 Potential for tension; competing incenti...
15
Second Order Effects
 The ESFS and inter-governmentalism
 Challenges it poses within the ESFS
 Complexity of ESA/NCA...
16
Third Order Effects
 The Consumer Financial System Governance Problem
 Impact of contestation fundamental here
 Is t...
Upcoming SlideShare
Loading in …5
×

Technocratic and Centralized Decision-making in Banking Union: A Comment from the Financial Regulation Perspective | European Banking Union – Democracy, Technocracy and the State of Integration

931 views

Published on

Conference: European Banking Union: Democracy, Technocracy and the State of Integration - Global Governance Programme, Robert Schuman Centre for Advanced Studies, European University Institute

By: Niamh Moloney, London School of Economics and Political Science

  • Be the first to comment

  • Be the first to like this

Technocratic and Centralized Decision-making in Banking Union: A Comment from the Financial Regulation Perspective | European Banking Union – Democracy, Technocracy and the State of Integration

  1. 1. 1 Technocratic and Centralized Decision-making in Banking Union: A Comment from the Financial Regulation Perspective EUI, May 2015 Niamh Moloney, London School of Economics and Political Science
  2. 2. 2 Introduction  A staging post reached → reflect on recent experience; implications of centralization of decision-making in BU; degree of speculation  First order effects within BU: compromises between functional imperatives and competing imperatives  Second order effects on the ESFS  ESFS/single market implications a major determinant of the effectiveness of the new system  Containment of systemic risk; management of transaction costs  Third order effects? Consumer financial governance?  A modest and empirical contribution  Functional effectiveness: capacity to achieve outcomes related to market efficiency, transparency, integrity; financial stability; consumer protection and be legitimate and accountable
  3. 3. 3 Introduction  Transformation of EU financial system governance  Governance system within which institutions and processes which support financial intermediation in the single market operate  2015  Stability returning (?)  Beyond institution building – Capital Markets Union and deregulation  ESFS: first review (summer 2014)  BU: from abstraction to execution to operation  Major claims being made - ECB 2015 and integration  But uncertainties  Fiscal backstop  Centrifugal effects on single market  But a reasonably stable basis for speculation
  4. 4. 4 EU Financial Governance  ESFS  A network: NCAs (+ ECB); ESRB; ESAs  Pivotal role of ESAs, but elusive status  Ex: political - fiscal redline; constitutional - agency constraints  Supranational/intergovernmental?  Board of Supervisor QMV dynamics  Evidence? Consensus v QMV; impact of Commission  Accountability processes  Quasi-rulemaking; supervisory governance
  5. 5. 5 EU Financial Governance  BU  Beyond co-ordination; institutionalized support for fiscal risk mutualization; centralization of supervisory (and some regulatory) governance  Revolutionary rather than evolutionary  But framed within a perimeter  Thick rule-books (ex: BRRD + level 2 + soft law; CRD IV/CRR + level 2 + soft law). Limited discretion (?) – although proportionality mechanisms  SSM and SRM  Mechanisms (SRM to a greater extent – SRB does not execute resolution decisions in steady state)  Direct oversight for largest banks (123 banking groups – 1,200 banks; 82% of euro area banking assets)
  6. 6. 6 First Order Effects  Effectiveness of BU decision-making (SSM)  Defining feature: impact of re-/up-cycling effects and political/constitutional compromises (recurring pattern of institutional design for financial governance)  Rickety processes  Will they support flexible and nimble decision-making?  Changes to operating environment  Financial system conditions  Managing uncertainty  NCA relationships (the mechanism)  Examples of weaknesses
  7. 7. 7 First Order Effects  Monetary/supervisory conundrum  The Supervisory Board; adoption by Governing Council  Silent assent/non-objection; default: decisions ‘deemed adopted’  Mediation Panel  Parallel with ESA/Commission endorsement  Independence  Some degree of ambiguity arising from tensions between supervisory independence/monetary independence  Primacy of Governing Council  Exclusion of non-euro-area  Remedial fixes – but sustainable?
  8. 8. 8 First Order Effects  But..  Supranational quality (Supervisory Board)  Constrained operating environment  Enumerated powers  NCAs and the mechanism  CRD IV/CRR; EBA  The SRB  Otiose to underline difficulties from a financial governance perspective  The famous 48 hours decision-making procedure for resolution decisions; SRB + Commission endorsement + potential engagement of Council  But a pragmatic solution  Builds on enhanced supervision, resolution planning, early warnings, crisis prevention  Compare international progress on resolution
  9. 9. 9 First Order Effects  Early Lessons (SSM)  Scale of the operational achievement  Procedural basis; Mediation Panel; Board of Review  Allocation of banks to direct oversight (and related review process)  Comprehensive Assessment  1,000 staff (cultural challenges)  Data collection and management (FINREP and COREP)  IT/system readiness  Joint Supervisory teams for 123 groups  Supervisory Review and Evaluation Process (SREP) and ‘SSM Supervisory Manual’  First sets of SREP reports  Implications?  Decision making functionality  Establishment of hierarchy
  10. 10. 10 First Order Effects  But.. movement to ‘business as usual’  Change of incentives politically within SSM-zone from Comprehensive Assessment/build-up phase  Previously, few incentives to disrupt given signalling risks but may change  2015 ECB/SSM agenda  Comprehensive Assessment follow up/SREP  Monitoring non-performing loans; viability of bank business models and profitability drivers; ‘a more intrusive approach to banking supervision’  Accountability pressures  Output legitimacy and benchmarks?  Parliament role  2015 Annual Report
  11. 11. 11 Second Order Effects  Multiplicity of BU effects on ESFS  Ex: Commission position; ESMA incentives  EBA/BU the most immediate  EBA/BU and regulatory governance  Single rule-book functions (BTS proposal + guidelines: ‘regulatory products’): critical for single market  Complex operating environment  BU caucusing ?  Governances fixes through the double-lock  Competing ECB standard-setter (rules, instructions, and guidelines)?  Identification of primacy of EBA soft law  Communication?  The ‘observer’ issue – recent ECB evidence  EBA engagement with ECB….
  12. 12. Second Order Effects  EBA/BU and Supervisory Governance  Notionally separate: executive v. coordinator  But supervision v regulation?  The SREP  And powers in tension?  Stress testing  ECB 2015 Report 12
  13. 13. Second Order Effects  Early Lessons  Rule-making Governance  CRD IV/CRR and EBA credibility/capacity  EBA as custodian of data collection (FINREP/COREP)  Monitoring divergences and shaping level 1  Opinions; definition of capital instruments  Astute EBA sense of institutional position  Emerging ECB/EBA ‘axis of technocracy’  The Basel III Regulatory Consistency Assessment Programme (RCAP) experience  Aligned interests? 13
  14. 14. 14 Second Order Effects  Supervisory Governance  The Comprehensive Assessment  Potential for tension; competing incentives; dual mandates  Outcome augurs well  The SREP  Purpose and importance: critical to CRD IV/CRR (Basel III ‘Pillar 2’)  EBA → Guidelines (‘Single Supervisory Handbook’); ECB → operation  But divergence risks and prejudice to single market  ECB to follow EBA ‘Handbook’ but operationalizes it through its ‘Manual’  2015 Annual Report: follows Handbook; complementary  ECB ‘SSM Supervisory Manual’ v EBA ‘Single Supervisory Handbook’?  EBA and SREP: SREP Report on 2014; colleges of supervisors
  15. 15. 15 Second Order Effects  The ESFS and inter-governmentalism  Challenges it poses within the ESFS  Complexity of ESA/NCA relationship  Ground for contestation (increasing…?)  Disruptive quality of inter-governmentalism  Forces for change?  ESFS Review  The evolutionary nature of financial governance and the ECB/SRB example
  16. 16. 16 Third Order Effects  The Consumer Financial System Governance Problem  Impact of contestation fundamental here  Is there a governance system? Is this a problem?  Similarities with international financial governance  BU effects?  ESA incentives to engage with consumer markets limited  ESMA and the financial stability agenda  EBA  An uncomplicated space?  Recent evidence  But mandate difficulties and priorities

×