Organisation of Financial Supervision in Europe: Recent Developments “Un pour tous, tous pour un” Alexandre Dumas The three Mosketeers So welcome to the presentation about recent developments of financial supervision in -Europe Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo Overview Introduction Models and current structure Requirements for efficient supervision Arguments for and against a single regulator Financial market structure in European Countries Latest Developments Financial integration in Europe Conclusions The topics covered in the presentation are: Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo 1. Introduction Financial supervision is the mechanism to prevent instabilities in the financial sector But first let me begin with an introduction to the subject on financial supervision. First of all. What are the goals of financial supervision? Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo 1. Introduction Goals of financial supervision: Market confidence Public awareness Consumer protection Reduction of financial crime Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo 1. Introduction What are the authorities entrusted with the financial supervision function? Single regulator or divided supervision? What are the objectives? How is it funded? Operational method? Does the authority hold legislative powers? Financial Supervision in Europe Erol Vural and Beatriz Malo

2. Models and Current Structure Sectional Supervision (traditional) Banking Supervision Insurance Supervision Securities Supervision Banking Sector Insurance Sector Securities Sector Financial Supervision in Europe Erol Vural and Beatriz Malo

2. Models and Current Structure Twin Peaks Model (Goodhart, Taylor) Consumer Protection Prudential Supervision Financial Crime Supervision Financial Services Firms\Conglomerates Financial Supervision in Europe Erol Vural and Beatriz Malo

2. Models and Current Structure Integrated Supervision Integrated Financial Services Authority [e.g.: BaFin (Ger), FSA (UK)] Securities Sector Banking Sector Insurance Sector Financial Supervision in Europe Erol Vural and Beatriz Malo

2. Models and Current Structure Financial Supervision in Europe Erol Vural and Beatriz Malo

3. Requirements for Efficient Financial Supervision Independence and accountability Enforcement Powers Cost effective Regulation Financial Supervision in Europe Erol Vural and Beatriz Malo

4. Arguments for a unified Regulator Economies of Scale and Scope Conflict resolution Competitive Neutrality Conglomerates Risk-based supervision Accountability Financial Supervision in Europe Erol Vural and Beatriz Malo

4. Arguments against a unified Regulator Concentration of power Public perception Moral hazard No 100%-Rescue-Target Financial Supervision in Europe Erol Vural and Beatriz Malo

5. Financial Structure in European Countries Database from the IMF (Thorsten; Demirgüc-Kunt) Time Series from 1980 to 1997 Data: assets of deposit money bank (% GDP) stock market capitalisation (% GDP) assets of insurance companies (% GDP) Now I would like to continue with the analysis Financial Supervision in Europe Erol Vural and Beatriz Malo

5. Financial Structure in European Countries a) Countries with separated agencies: Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo Financial Supervision in Europe Erol Vural and Beatriz Malo

5. Financial Structure in European Countries b) Countries with a mixed form of regulation Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo Financial Supervision in Europe Erol Vural and Beatriz Malo

5. Financial Structure in European Countries c) Countries with a single regulator Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo Financial Supervision in Europe Erol Vural and Beatriz Malo

5. Financial Structure in European Countries Main Points: Single regulator in Scandinavian Countries with consolidated financial supervision Followed by Anglo-Saxon countries Case of Germany Southern European Countries with separated agencies Insurance regulator: concerns over consumer protection Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo 6. Latest Developments 1) Consolidation Cross-sectoral Powerful financial conglomerates Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo 6. Latest Developments 2) Co-operation National level: different agencies International/European level Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo 6. Latest Developments 3) Self-regulation Internal mechanism of control Cost/efficiency analysis Concentrate on threats to the overall stability Financial Supervision in Europe Erol Vural and Beatriz Malo

7. Financial Integration in Europe Wholesale Markets ( Judged as integrated) Retail Markets (slow convergence process) M&As in Europe Main instrument for entrance into national markets Financial Supervision in Europe Erol Vural and Beatriz Malo

7. Financial Integration in Europe Value of M&As in the financial sector between 1985 and 1997 Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo Additional Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo 8. Conclusions Financial supervision has to adapt to rapid changes in financial markets: conglomeration, globalisation, technological advancements, liberalisation, introduction of the Euro There is still a lot of work to be done concerning harmonisation and on the political will level in order to implement a European supervisor. However, we see the need for a European supervisor in the future. Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo Should the financial supervision responsibility be in the hands of the European Central Bank? Financial Supervision in Europe Erol Vural and Beatriz Malo

Erol Vural and Beatriz Malo “In accordance with article 105 (5) of this Treaty, the ESCB shall contribute to the smooth conduct of policies pursued by the competent authorities relating to prudential supervision of credit institutions and the stability of the financial system” Protocol on the Statute of the European Systems of Central Banks and of the European Central Bank. Art. 3.3 Financial Supervision in Europe Erol Vural and Beatriz Malo