This timely article was written for AMCHAM by Katia Volodine
The recent Credit Suisse proposed acquisition by UBS and the saga of the collapse of several banks in the US (SVB and Signature Bank), may be a trigger that it is time to rethink banking regulation.
The banking regulation in the European Union is currently organized around a system of a single supervisory mechanism, the setup of which has been accelerated by the financial crisis 2008-2009. It comprises the European Central Bank (ECB) and the national supervisory authorities of the participating countries. Some of the main goals of this single supervisory mechanism is to ensure financial integration, stability and consistent supervision. The ECB directly supervises certain significant banks (representing 82% of banking assets in the participating countries). The non-significant banks are supervised by national financial regulators which work in close cooperation with the ECB.
Luxembourg, part of the European Union, offers a stable financial system which guarantees a good business environment. The European banking regulation thus proves that it may have achieved a favorable regulatory banking environment which should however be taken with caution. As we saw sometimes deregulation maybe detrimental to the banking system. This has been the case in the US under the Trump administration where deregulation of smaller banks may have played a negative effect on banks’ financial stability. A fine line should be made between over regulation and an insufficient regulation. It may also be a good opportunity for Europe to create some synergies with its US counterparts and see how banking regulation could be improved further.
Also, in the European Union, this may be a great opportunity to rethink about the efficiency of the single supervisory mechanism and maybe consider whether a supervision at an international level is necessary since all the systemically important banks are internationally linked.
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