Regulating Multinational Banks in Europe: An Assessment of the New Supervisory Framework

65 Pages Posted: 1 May 2010 Last revised: 8 May 2010

See all articles by Guido Ferrarini

Guido Ferrarini

University of Genoa - Law Department and Centre for Law and Finance; European Corporate Governance Institute (ECGI)

Filippo Chiodini

Università degli Studi di Genova - Law School

Date Written: April 27, 2010

Abstract

In this paper, we examine recent developments and new perspectives of European banking regulation from the viewpoint of multinational banks. Our approach is justified on at least three grounds. First, cross-border banking groups were at the centre of the recent financial turmoil, which seriously affected many of them. Second, and as a consequence, recent reforms in Europe and elsewhere were particularly addressed to cross-border banking groups and other systemically relevant institutions. Third, European harmonization was largely built along the model of the (stand-alone) cross-border bank mainly operating through branches, whereas European financial markets see cross-border banking groups with subsidiaries in several countries as major players. After introducing the mismatch between national banking supervision and international banking groups, we analyze the recent developments of EU cross-border supervision with respect to both branch and subsidiary structures of multinational banks. Subsequently, we examine the proposed new regulatory architecture, which is based on the distinction between macro- and micro- prudential supervision, and includes new European bodies and a network of European financial supervisors. We claim that the proposed new European supervisory architecture should be backed with an appropriate framework for crisis management and resolution. Due to the specificities of multinational banks and the unique features of their corporate governance, we argue for uniform rules and a set of tools for early intervention and resolution. Otherwise, fragmentation of ailing institutions along national borders will limit the scope for and possibly lead to a reversal of the European financial integration process. From this perspective, the steps taken so far in the EU, while remarkable, do not seem sufficient. Moreover, their effectiveness very much depends on how crisis management and resolution will be regulated.

Keywords: multinational banks, cross-border banking, banking regulation, prudential supervision, corporate governance of banks, crisis management, systemic risk, financial crisis

JEL Classification: G21, G28, G33, G38, K23

Suggested Citation

Ferrarini, Guido and Chiodini, Filippo, Regulating Multinational Banks in Europe: An Assessment of the New Supervisory Framework (April 27, 2010). ECGI Law Working Paper No. 158/2010. Available at SSRN: https://ssrn.com/abstract=1596890 or http://dx.doi.org/10.2139/ssrn.1596890

Guido Ferrarini (Contact Author)

University of Genoa - Law Department and Centre for Law and Finance ( email )

Via Balbi, 22
16126 Genova, 16100
Italy
+39 010 209 9894 (Phone)
+39 010 209 9890 (Fax)

HOME PAGE: http://www.clfge.org

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Filippo Chiodini

Università degli Studi di Genova - Law School ( email )

Via Balbi, 22
16126 Genova
Italy
+39 010 209 9893 (Phone)
+39 010 209 9890 (Fax)

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