Banking Supervision and Resolution: The European Dimension

Law and Financial Markets Review, Vol. 6, 2012, p. 52-60

Duisenberg School of Finance Policy Paper No. 19

15 Pages Posted: 10 Jan 2012 Last revised: 20 Feb 2013

See all articles by Dirk Schoenmaker

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM); Centre for Economic Policy Research (CEPR)

Date Written: January 9, 2012

Abstract

Both theory (game theory) and practice (recent financial crisis) indicate that national interests prevail in cross-border resolution. National authorities aim for the least-cost solution for domestic taxpayers. This results in an undersupply of the public good of global financial stability. International banks are increasingly run on national lines, as national supervisors force stand-alone subsidiaries to maintain separate liquidity and capital buffers in each jurisdiction.

To preserve the Internal Market in Banking, this paper proposes a supranational approach to banking supervision and resolution in Europe. The large cross-border banks would then be supervised directly by the European Banking Authority, and in case of liquidity and solvency problems, have access to the ECB and the newly proposed European Resolution Authority. The European Resolution Authority needs a fiscal backstop and a strong legal framework to be credible. The access to government funds could be based on ex ante burden sharing between participating countries. The legal regime could be provided by a new special resolution regime embedded in a EU Regulation giving powers to liquidate or resolve ailing banks in a timely and orderly manner on a EU-wide scale.

Keywords: Financial Stability, Economic Integration, International Policy Coordination

JEL Classification: F36, F42, F51, G28

Suggested Citation

Schoenmaker, Dirk, Banking Supervision and Resolution: The European Dimension (January 9, 2012). Law and Financial Markets Review, Vol. 6, 2012, p. 52-60, Duisenberg School of Finance Policy Paper No. 19, Available at SSRN: https://ssrn.com/abstract=1982168 or http://dx.doi.org/10.2139/ssrn.1982168

Dirk Schoenmaker (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam
Netherlands

HOME PAGE: http://www.rsm.nl/people/dirk-schoenmaker/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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