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Building Effective European Banking Supervision (BEEBS)

 

 

Fonds National de la Recherche CORE Project, 2020-23

Since the start of January 2011 — for the first time in world history — a system of supranational banking supervision has been established with distinct roles for the European Banking Authority (EBA) and the European Central Bank (ECB) in relation to National Competent Authorities (NCAs). Despite on-going efforts to converge national supervisory practice, considerable divergence remains, a reflection of firmly entrenched supervisory cultures in EU member states which reflect different national institutional (including legal) frameworks. This interdisciplinary research project (political science, law and financial economics) seeks to examine the centripetal pressures encouraging supervisory convergence created by the operation of the three European supervisory jurisdictions.

The rise of cross-border banking without effective coordination of national banking supervision undermines the pursuit of banking system stability. There exist now two EU supranational bodies which have been created to foster convergence in supervisory practice — specifically through the application of the EU’s ‘Single Rulebook’ approach to credit institutions. These are the EBA — which began operation on 1 January 2011 — as a leading element of the European System of Financial Supervisors (ESFS) involving all EU NCAs; and the ECB at the head of the Single Supervisory Mechanism (SSM) — which began operation on 4 November 2014. Three ‘hub-and-spokes’ relationships have been created: the EBA and NCAs in the ESFS; the ECB and NCAs with regard to the supervision of the largest banks (significant institutions, SIs) headquartered in the euro area; and the ECB and NCAs with regard to the supervision of smaller banks (less significant institutions, LSIs) headquartered in the euro area. 

The research project fits into the CORE Research Priority domain: Development and Performance of the Financial Systems. The key issue examined in this research project is whether the EBA and ECB have sufficient institutional capacity to ensure a supervisory level playing field to match the EU’s power to ensure a regulatory level playing field. A potential discrepancy between regulatory and supervisory playing fields could lead to (more) fragmentation of the single market for banking services, which could further undermine the stability of already fragile European banking systems.