A ‘Twin Peaks’ Vision for Europe

Chapter for The Cambridge Handbook of Twin Peaks Financial Regulation, edited by A. Godwin and A. Schmulow, Cambridge University Press, 2018, Forthcoming

12 Pages Posted: 13 Nov 2017

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)

Nicolas Veron

Bruegel; Peter G. Peterson Institute for International Economics

Date Written: November 8, 2017

Abstract

The European financial supervisory architecture is based on a sectoral model with separate authorities for banking, insurance and securities and markets. New developments in the European financial sector make this sectoral structure increasingly out of date:

• Brexit creates a need for strong EU-level wholesale market and conduct-of-business supervision to build an integrated capital market for the EU27;

• Mis-selling of bank bonds – that can be bailed in – to retail consumers has highlighted the need for a strong conduct-of-business supervisor for banking and other retail financial services, separate from prudential supervision to ensure a strong focus on the interests of consumers;

• Financial conglomerates, combining banking and insurance, make up about a third of Europe’s banking and insurance sector. Joined-up supervision would strengthen the prudential supervision of these conglomerates.

To deal with these challenges, the EU should commit to a twin peaks model as a long-term vision for supervision. The first peak would be prudential supervision focusing on the health and soundness of financial firms. As these financial firms have become increasingly interwoven, the vision of integrated cross-sector prudential supervision is increasingly compelling, even though legal obstacles imply it cannot be implemented at the European level in the near term. The second peak would be a strong markets and conduct of business supervisor. This supervisor would solely focus on the proper functioning of markets and fair treatment of consumers. This twin peaks model should guide Europe’s efforts to deal with current challenges.

Keywords: supervisory structure, prudential supervision, conduct of business supervision

JEL Classification: G18, G28

Suggested Citation

Schoenmaker, Dirk and Veron, Nicolas, A ‘Twin Peaks’ Vision for Europe (November 8, 2017). Chapter for The Cambridge Handbook of Twin Peaks Financial Regulation, edited by A. Godwin and A. Schmulow, Cambridge University Press, 2018, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3067858

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

Nicolas Veron

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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