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The European Banking Union: where do we stand?

The European Banking Union: where do we stand?. Multinational banks: business model, regulatory developments and implications for financial stability and integration. Andrea Generale Bank of Italy. Elements of a BU. Banking union: Single supervisory mechanism (SSM)

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The European Banking Union: where do we stand?

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  1. The European Banking Union:where do we stand? Multinational banks: business model, regulatory developments and implications for financial stability and integration Andrea Generale Bank of Italy

  2. Elements of a BU Banking union: Single supervisory mechanism (SSM) Common resolution framework Common deposit insurance system Sequencing issue not optimal? Schoenmaker trilemma: national fiscal policies, financial stability, financial integration: to solve the trilemma need all elements of a BU 2

  3. Reasons for a BU Long-term and short-term reasons: 1. Long-lasting objective: establish truly European supervisory frameworks in order to cope with the systemic risks due to the interconnectedness of financial institutions and markets in different jurisdictions (Padoa-Schioppa) 2. Regulation and Supervision. I am one of those who think that supervision, not regulation, was the main problem: stronger enforcement of the existing rules (supervision) would have sufficed to avoid the disaster (Padoa-Schioppa). 3

  4. Reasons for a BU Problems with the current setting are clear: Balkanization of financial intermediation Ring fencing Challenges to specific configurations of large cross border banking groups (branches vs. subsidiaries) Effectiveness of Supervisory colleges Supervisory “styles” and spillovers 4

  5. Reasons for a BU Allow direct access to ESM funds Break the bank-sovereign link Increase transparency Protect the ECB as a liquidity provider 5

  6. Challenges SSM without a European resolution toolkit would not be credible and could even be counterproductive Incentives problems ECB will lack instruments for credible threat National authorities (constrained in their fiscal capacity) would not act ECB action would impose fiscal costs at the national level => risk of inaction and pressures on ECB as a liquidity provider 6

  7. Where do we stand Preparatory work is proceeding fast Key elements: leverage on national expertise while avoiding segmentation in supervision A common supervisory model (data, methodologies, governance of day-to-day supervisory activity) Centralized decisions with decentralization of tasks: need the right balance between efficiency and effectiveness Transition to the steady-state is clearly an issue Avoid a two-tier system 7

  8. The European Banking Union:where do we stand? Multinational banks: business model, regulatory developments and implications for financial stability and integration Andrea Generale Bank of Italy

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