Banking supervision – is variety really the spice of life?

Statement by Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, at the Eurofi Financial Forum, Tallinn, 15 September 2017

Variety is the spice of life, they say. But with regard to regulation and supervision, too much spice spoils the dish. Europe has thus opted for less variety and more harmonisation.

There is a single European rulebook for banks, there is a single European supervisor and there is a single resolution mechanism. All this helps to make banks safe and sound, and it prepares the ground for a truly European banking sector.

But below the surface, things are less harmonised. I will just mention three things in this context.

The first thing is the legal basis. The single rulebook is less single than the name implies. Parts of it are have been implemented through EU Directives which provide huge incentives to add as much national spice as possible.

The rulebook also contains a number of options and discretions. These offer some leeway in applying the rules. As European banking supervisors, we have agreed to exercise many of these options and discretions in a harmonised manner. Still, there are some which lie in the hands of governments – these too need to be harmonised.

The second thing is the scope of supervision. There are very good reasons for supervising specific types of entity at European level. However, these entities are still subject to national supervision and national regulation. The most obvious examples are large investment firms with cross-border, bank-like activities and third-country branches of non-EU banks.

In the wake of Brexit, many banks will decide to relocate from the United Kingdom to the euro area. And they might choose to set up third-country branches. At the same time, investment firms might also relocate. So I think it would make sense to regulate and supervise them at European level.

The third thing is the supervisors’ toolbox. There are tools which are available in some countries but not in others. The moratorium tool is one example. It is crucial for handling bank failures in a safe way; so it should become part of a harmonised European toolbox.

To sum up, in my view, there is still too much variety. To put it another way, there are too many differences when it comes to regulation and supervision in Europe. Such diversity can only be justified when it reflects country-specific risks. And that is not always the case. So if we are serious about the banking union, we must strive for more harmonisation.

Thank you for your attention.