The future of the European system for financial supervision:
architecture and governance
Contact Bocconi University for this project
Full Professor in Economics of Financial Regulation
Department of Economics
Director of Paolo Baffi Research Centre on Central Banking and Financial Regulation
Via Sarfatti 25, 20136 Milan, Italy
In Europe the emergence of banking conglomerates and even more integrated financial markets have raised both concerns as to the effectiveness of the actual nationally ┐ segmented supervisory regime and interests toward a full-fledged EU prudential regime. Using institutional indicators derived from the recent economic theory, the focus of the research programme could be twofold: First, it can analyse the governance of the financial supervisory architecture of each of the 27 EU countries and, second, it could assess the degree of convergence of their governance practices and identifies best practices among the EU financial supervisors.
Thus far, policy makers have taken a top down approach in their discussion about the future design of a European System for Financial Supervision (ESFS). A more promising and innovative perspective could take a bottom up approach, based on governance indicators and the degree of convergence of the supervisory architectures. The research could build up and apply novel architecture indicators as well as governance indexes to analyze the actual supervisory regime in the 27 EU countries, shedding light on their similarities and differences. The comparative study will identify the degree of institutional convergence. For each country, it could be possible to shed light on the degree of consolidation, the level of central bank involvement, and calculate the degrees of independence and accountability of the main financial supervisor, studying also their main components (as the financing rule of supervision. Then it could be possible to calculate the overall sample values for the EU 27, and consequently the degrees of convergence for each country. On this basis it could be possible to analyse how many options we have in order to design a centralized European System for financial supervision.
Relevance to future of European societies
Attention for governance arrangements for supervisors is urgently needed because the job content of supervisors has been changing dramatically in response to the worldwide liberalization of financial sectors and to the recent financial turmoil. Supervisors used to be compliance officers, checking if banks complied with various economic rules and regulations. Nowadays, supervisors are ┐governance supervisors┐ who have to monitor on behalf of the debt holders of the financial institutions the quality of the institutions┐ governance arrangements. Recent literature shows that good regulatory governance (governance of financial supervisors) is a precondition to implement this task successfully.