14 January 2009

Report: Empowering the ECB to supervise banks

The authors propose the adoption of a choice‐oriented approach to banking supervision by the ECB with member states having the option to choose whether to use the ECB.

The financial crisis has highlighted a range of flaws in the current structure for supervising banks in the EU. The many Memoranda of Understanding between supervisors supposed to establish regular exchanges of information have not worked. Banking supervisors have understated financial difficulties faced by banks operating in their jurisdictions. Colleges of supervisors set up by Member states to monitor cross-border banks have failed both to co-ordinate their actions and to co-operate.

With the banking supervision in the European Union having failed, and the main institutional reforms currently being proposed also likely to fail the authors explores the merits of a choice‐oriented approach under which individual Member states have the option to delegate prudential supervision of their largest banks to the European Central Bank.

The report and the press release are attached below.

Gerard Hertig is Professor of Law at ETH Zurich. Ruben Lee is CEO of the Oxford Finance Group, a private research and consulting firm. Joe McCahery is Professor of Corporate Governance and Innovation at the University of Amsterdam Faculty of Economics and Business and Professor of Financial Market Regulation at Tilburg University Faculty of Law and TILEC.