The chair of the Single Supervisory Board within the European Central Bank, Danièle Nouy, believes that there are gaps to be plugged in the European banking regulatory and supervisory framework with a view to the possible relocation of banks from the United Kingdom to the territory of members of banking union.
“Regulatory differences arising from member states’ options and discretions in the European prudential framework persist and may have a substantial impact in the context of Brexit”, Nouy said on Monday 19 June, at a public hearing before the committee on economic and monetary affairs (ECON) of the European Parliament.
She argued that banks choosing to move their activities to the eurozone could exploit “supervisory loopholes” by carrying out banking activities through an investment firm or third-country branches – which are not supervised at eurozone level, but at national level.
To avoid these risks, she calls upon the co-legislators to use the revision of the CRR regulation and the CRD directive on banking capital requirements to close these loopholes and reinforce convergence within the EU. With regard to this, the proposed intermediary parent company would, she feels, be a useful tool to ensure that branches of international groups established in a third country are subjected to the European banking supervisory framework.
Another question in need of answers is that of the supervision of major investment companies, particularly those that may pose systemic risks, Nouy said. She proposes to supervise these entities in the same way as banks, on the basis of models established in the UK and the US.
The hearing also provided an opportunity for the chair of the Single Supervisory Board to highlight the lack of ambition in terms of harmonisation of the banking package on risk reduction (see EUROPE 11674), currently under discussion, stressing that the European Parliament could play a key role in this.
Banco Popular. When asked by several MEPs about the recent resolution of the Spanish bank Banco Popular (see EUROPE 11803), Nouy said that this first major litmus test had been a success and that the directive on bank recovery and resolution (BRRD) had proven its worth.
The chair of the ECON committee, Roberto Gualtieri (S&D, Italy), expressed his concerns at the fact that a bank can be declared “failing or likely to fail” when it has passed two banking stress tests.
In response to Gualtieri, who argued that the Single Resolution Board should have identified the gaps in order to correct them, Nouy pointed out that it was easier to detect a mistake that has been committed; but as there were no mistakes, she does not know what they could have done differently.
Marco Zanni (ENF, Italy), who does not share the “euphoria of the European authorities on the application of the BRRD directive”, said that the resolution of Banco Popular simply shows the “fragility of banking union”. (Original version in French by Marion Fontana)