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The banking union: single supervision is still not common

Deutsche Bank, Germany’ largest bank, has announced a radical reorganisation plan involving 18,000 being made redundant, and the fact that the bank is in the red to the tune of 2.8 billion euro. This powerful bank has for some time been the focus of plans to redirect its strategy and put its finances back on track, but it was not until today that it resolved in favour of a plan involving cuts, saving and reorganisation. These matters have been examined by both the Bundesbank and the European Central Bank (ECB), and it would be interesting to know whether Deutsche Bank’s new plan was more the result of suggestions from, or the moral suasion of, the Bundesbank, as it was once claimed, or rather that of the control exercised by the ECB, including its powers to inflict penalties on European banks. In fact, the emerging relationship between the national central banks and the ECB it is still not clear, after the transfer of part of such national banks’ powers and duties to the ECB based in Frankfurt. This question remains on the table, accompanied by disagreements, tensions and legal appeals, also in the case of Italy’s own bank rescue operations, and is specifically dealt with in the book entitled “Vigilare le banche in Europa. Chi controlla il controllore?” (Passigli editore, pp. 165, 24 euro) [Supervising Europe’s banks. Who controls the controller?] written by Stefano Lucchini, Chief Institutional affairs and external communication officer of Intesa Sanpaolo, and Andrea Zoppini, lecturer in civil law at Rome III University.

 

“The essay underlines the need to harmonise European supervisory regulations”

 

The authors examine the questions relating to the supervisory model applied with the launch of the Banking Union, “a form of cooperation (...) that postulates unequal integration both in the decision-making process and at the operational level”. A system comprising different semantic codes, cultural backgrounds and approaches that “generate complex bureaucratic decisional processes and costly, not easily governable preliminary procedures” in order to pursue the target of “more rules and fewer discretionary powers”. The construction of the banking supervisory system appears incomplete, or the measures that have actually been implemented to date do not appear to have resolved the problems as they leave at least two key questions unanswered: the first in clear from the title of the book, “Who controls the controller?”, while the other concerns the changes made, or on-going, to the supervisory model following the Banking Union.

In regard to this, Lucchini and Zoppini write that “the question has to be asked as to whether the choice of an unnaturally standardised regulatory framework was inescapable, particularly during a transitional period; that is, whether Italian, Lithuanian and German banks inevitably have to abide by the same rules. Equality and non-discrimination do not always equate with the application of the same rules when profoundly different business traditions and regulatory models are standardised.

The observation is pertinent, but the direction taken was another one: “The decision to place the focus of banking regulations on capitalisation requirements applied in an incremental, strict fashion, has inevitably meant - beneath the apparent equality of treatment - that banks belonging to systems such as the German one, where capitalisation is easier and less costly, have been favoured”.

Perhaps in order to facilitate a positive transformation of the supervisory system, countries’ diverse histories and culture should be respected, and a form of “informal regulation” and a softer, more cooperative approach, should be adopted, without having to return to that informal regulatory mode whereby central bankers whispered their recommendations to the heads of the corresponding banks.

Nobody is suggesting that we turn the clock back; however, it is now necessary to harmonise supervisory rules at European level in order to prevent the shortcomings in the supra-national system from opening up ungoverned spaces.

Stefano Lucchini and Andrea Zoppini’s book “Vigilare le banche in Europa. Chi controlla il controllore?” 

 

July 2019 

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