1. 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

2. 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

3. 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

4. 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

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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

6. 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

7. 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

8. 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

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

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

11. 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

12. 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

13. 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

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

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Financial Supervision in Europe
Erol Vural and Beatriz Malo

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Financial Supervision in Europe
Erol Vural and Beatriz Malo

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Financial Supervision in Europe
Erol Vural and Beatriz Malo

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

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Financial Supervision in Europe
Erol Vural and Beatriz Malo

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Financial Supervision in Europe
Erol Vural and Beatriz Malo

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

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Financial Supervision in Europe
Erol Vural and Beatriz Malo

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Financial Supervision in Europe
Erol Vural and Beatriz Malo

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Financial Supervision in Europe
Erol Vural and Beatriz Malo

25. 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

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

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

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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

29. 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

30. 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

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Additional
Financial Supervision in Europe
Erol Vural and Beatriz Malo

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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

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

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“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