The future of cross-border supervision in Europe: practical and political challenges in establishing a European banking union

Regulation and supervision
/ Banking

Bank Governance Leadership Network, April 2013

Supervision of large global banks has been changing dramatically over the past few years, and participants in the Bank Governance Leadership Network (BGLN) have been discussing those changes since the network’s inception. Although there have been substantial improvements in the focus and execution of supervision, challenges remain, especially when it comes to cross-border supervision, which is plagued by what some BGLN participants describe as “balkanization.” European Banking Authority (EBA) Chairman Andrea Enria summed up the challenge: “Strengthening regulation is not enough if it is not coupled with more effective supervision, especially for those large and complex groups that are active on a cross-border basis and may generate systemic risks across jurisdictions.”

The introduction of a European banking union (EBU) will greatly alter cross-border supervision for those operating in the eurozone, and also for many banks operating outside the eurozone. During the first few months of 2013, BGLN participants shared their perspectives on the need for, and challenges of, establishing an EBU. These discussions culminated in a meeting in London on March 19, 2013 of 13 non-executive directors, two executives from large banks, and two officials from the policy and supervisory community.   

This ViewPoints captures the thrust of those conversations, in which four key themes emerged:

  • Despite improvements, cross-border supervision is still far from optimal

  • A European Single Supervisory Mechanism (SSM) is coming, but key questions remain

  • The SSM can only work if other building blocks are in place

  • The debate on the EBU is a microcosm of the debate on European integration and power shifts