European Union Public Policy Tendences in the Banking Sector

Vytautas Šenavičius

Abstract


Over the financial crisis, the ability of authorities to manage crises both domestically and in cross-border situations has been severely tested. The financial crisis exposed many problems within the global financial system and in the way it was regulated and governed. Financial market regulators did not accurately identified the risk of the banks taken in securitization procedures and did not estimated the losses that could appear in case of the systemic crisis. This led to chaotic bank crisis resolution and extraordinary financial cost suffered by Member States. Hence, the taxpayers were called upon billions of euro to recapitalize the banks in order to prevent the contagion risk.
These failures of efficient prudential supervision and lack of regulation in banking restructuring and resolution has led to a need to create a banking union in the European Union which should assure the sufficient capital requirements of the banks and harmonized deposit guarantee scheme, also creation of the single supervisory mechanism and (single) banking recovery and resolution mechanism. Some of the legislative initiatives are agreed, others are under negotiation processes and an important single resolution mechanism proposal is still under in drafting process.
As for public policy of the European Union the most important legislative procedures are single supervisory mechanism (SRM) and banking restructuring and resolution (RRD). The said proposals will centralize the prudential supervision in the hands of European central bank and provide harmonized approach on bank rcoery and resolution mechanisms. However, the centralization of the prudential supervision within euro-zone and non-euro zone member states that are willing to join the SSM will have a significant impact on the national public administration systems. Therefore, there is a need of scientific analysis of this phenomena.
Hence, the article considers possible positive and negative the implications of the SSM and RRD on national public administration systems and stresses the main problematic issues (efficacy of centralized supervision, funding of the resolution, institutions that could be a resolution authority). The author stresses that in overall the RRD proposal will enforce the structured and also more efficient supervision and would definitely reduce the risk of spending taxpayers’ money in banks’ resolution. As regards to SSM, the author claims that the centralized model could be efficient only in cases where the domestic supervisory institution provides the sufficient know-how for the European central bank.

Keywords


single supervisory mechanism; bank recovery and resolution; resolution authority; resolution tools; European central bank

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DOI: http://dx.doi.org/10.5755/j01.ppaa.12.3.5291

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"Public Policy and Administration" ISSN online 2029-2872 / ISSN print 1648-2603