Howarth_Quaglia_final_WEP_Complete
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Howarth_Quaglia_final_WEP_Complete
Internationalized Banking and National Preferences on European Central Bank Supervision in Banking UnionDavid Howarth, University of LuxembourgDavid. Howarth_Quaglia_final_WEP_Complete howarth@uni. 111Lucia Quaglia, University of YorkLucia.quaglia@york.ac.ukAbstractThis paper sets out to explain the preferences of the seven northern euro area member states on the Single Supervisory Mechanism (SSM) concerning the threshold set for direct European Central Bank control over bonk sup Howarth_Quaglia_final_WEP_Completeervision. Building on the concept of the 'financial trilemma', we argue that different bank internationalization patterns in rhe seven northern memberHowarth_Quaglia_final_WEP_Complete
states explain different preferences on the transfer of supervisory powers over less significant banks to the ECB. In particular, the reach of internInternationalized Banking and National Preferences on European Central Bank Supervision in Banking UnionDavid Howarth, University of LuxembourgDavid. Howarth_Quaglia_final_WEP_Completeo be the core factor explaining different national preferences on threshold. In the five countries with a large number of small and parochial alternative (cooperative and savings) banks, it Is necessary to examine the system-specific structures of these banks to explain better the reach of internati Howarth_Quaglia_final_WEP_Completeonalization and national preferences on the threshold. Determined German opposition to ECB supervision of smaller alternative banks is1juxtaposed withHowarth_Quaglia_final_WEP_Complete
either less hostile or more positive support of at least four other countries despite the important presence of small alternative banks.Keywords: BanInternationalized Banking and National Preferences on European Central Bank Supervision in Banking UnionDavid Howarth, University of LuxembourgDavid. Howarth_Quaglia_final_WEP_CompleteCouncil agreed to deepen Economic and Monetary Union (EMU) by creating ‘Banking Union’ (BU), which was to be based on four components: a single framework for banking supervision; a single framework for the managed resolution of banks and financial institutions; a common deposit guarantee scheme; and Howarth_Quaglia_final_WEP_Complete a common backstop for temporary financial support. The proposals for BU amounted to a radical initiative to rebuild financial market confidence in boHowarth_Quaglia_final_WEP_Complete
th banks and sovereigns — especially in the euro area periphery — to stabilise the national banking systems exposed directly to a vicious circle betweInternationalized Banking and National Preferences on European Central Bank Supervision in Banking UnionDavid Howarth, University of LuxembourgDavid. Howarth_Quaglia_final_WEP_Complete the fragmentation of European financial markets. BU was also to bring about a significant transfer of powers from the national to the EU (to be precise, the BU) level.The first key component of BU to be agreed was the Single Supervisor}- Mechanism (SSM), which was proposed by the Commission in Sept Howarth_Quaglia_final_WEP_Completeember 2012 and approved by government leaders at the December 2012 European Council. The compromise reached foresaw that the ECB would be 'responsibleHowarth_Quaglia_final_WEP_Complete
for the overall effective functioning of the SSM’ and would have2‘direct oversight of the euro area banks' (European Council 2012a, p. 2; 2012b; 2012Internationalized Banking and National Preferences on European Central Bank Supervision in Banking UnionDavid Howarth, University of LuxembourgDavid. Howarth_Quaglia_final_WEP_Completerect F.CB supervision (through Joint Supervisory loams (JSls)) was to cover those banks which met the following four criteria: one ol the country’s three largest banks by assets; assets exceeding €30 billion; assets representing at least 20 per cent of their home country's annual GDP, except if the Howarth_Quaglia_final_WEP_Completebank’s assets amount to less than €5 billion; any other bank with a high level of cross-border exposure (although no precise figure was established).THowarth_Quaglia_final_WEP_Complete
his paper sets out to explain national preferences on the threshold set for direct ECB supervision of seven northern euro area member states.1 ThreshoInternationalized Banking and National Preferences on European Central Bank Supervision in Banking UnionDavid Howarth, University of LuxembourgDavid. Howarth_Quaglia_final_WEP_Completeervisors but also national governments. A very high bank size threshold (by bank assets and / or by assets as a percentage of national Gross Domestic Product (GDP)) would result in only the very largest banks being subject to direct ECB supervision. A cross-border threshold (notably, foreign held as Howarth_Quaglia_final_WEP_Completesets as a percentage of total bank assets) would lead to only banks with a certain level of cross-border activity being subject to ECB supervision. AHowarth_Quaglia_final_WEP_Complete
combination of size and cross-border criteria would further limit the number ol banks depending on the precise levels set. Thus, threshold was about dInternationalized Banking and National Preferences on European Central Bank Supervision in Banking UnionDavid Howarth, University of LuxembourgDavid. Howarth_Quaglia_final_WEP_Completent Authorities (NCAs).’ rhe selection of these cases is explained below; Other papers in Illis special edition focus more specifically on the negotiations on the SSM (see notably Epstein and Rhodes, this volume). See also Howarth and Quaglia (2013).3National preferences on the reach of the ECB’s dir Howarth_Quaglia_final_WEP_Completeect control over bank supervision varied markedly. France, Luxembourg and the Netherlands supported direct ECB supervision over all euro area banks. AHowarth_Quaglia_final_WEP_Complete
ustria, Belgium and Finland preferred ECB supervision of only the largest systemically important banks. For officials from the latter three countries,Internationalized Banking and National Preferences on European Central Bank Supervision in Banking UnionDavid Howarth, University of LuxembourgDavid. Howarth_Quaglia_final_WEP_Completesion over thousands of smaller banks given staffing, travel and language concerns. Such concerns were however downplayed by French, Luxembourgish and Dutch negotiators who called for a gradual transfer. Crucially though, Austrian, Belgian and Finnish negotiators were willing to compromise on this po Howarth_Quaglia_final_WEP_Completeint — the threshold was not a deal breaker for these three countries — and all accepted the possibility of ECB supervision for most if not all euro arHowarth_Quaglia_final_WEP_Complete
ea banks.2 3 The Austrian finance minister publicly criticised the German negotiators for their stubborn position on threshold and on sheltering smallInternationalized Banking and National Preferences on European Central Bank Supervision in Banking UnionDavid Howarth, University of LuxembourgDavid. Howarth_Quaglia_final_WEP_Completeernment efforts to protect the country’s cooperative and savings bank sector from EƯ Commission efforts to liberalise it (see Deeg 1999; Smith 2001). Given the important presence of smaller alternative banks in five of the seven banking systems examined in this article, a more uniform preference in2 Howarth_Quaglia_final_WEP_CompleteThis claim has been confirmed in interviews with a large number of national ministry' of finance and permanent representation officials from nine diffHowarth_Quaglia_final_WEP_Complete
erent member states. While less specific, several public statements by ministers and ministry officials of these three countries at the time of the neInternationalized Banking and National Preferences on European Central Bank Supervision in Banking UnionDavid Howarth, University of LuxembourgDavid. Howarth_Quaglia_final_WEP_Completeean-banking-iinion-end-in-failure/. 4 December 2012; accessed 12 December 2014.4https://khothuvien.cori!favour of a high threshold for direct ECB supervision might have been expected. In particular, the juxtaposition of the German, French and Austrian positions on threshold merits further exploratio Howarth_Quaglia_final_WEP_Completen: alternative banks held respectively 43,43 and 50 per cent of assets in these three countries (central bank data). The bulk of these banks were veryHowarth_Quaglia_final_WEP_Complete
small institutions.Why did some national finance ministries seek to extend direct ECB supervision to many if not all banks, including small parochialInternationalized Banking and National Preferences on European Central Bank Supervision in Banking UnionDavid Howarth, University of LuxembourgDavid. Howarth_Quaglia_final_WEP_Complete Building on the concept of the ‘financial trilemma’ (discussed in the following section) we demonstrate that neither the presence of large cross-border banks nor other aggregate internationalization measures that might be applied explain effectively- national preferences on threshold. Rather, we ar Howarth_Quaglia_final_WEP_Completegue that the ‘reach’ of internationalization into the banking system best explains national policy and that this ‘reach’ should be analysed in terms oHowarth_Quaglia_final_WEP_Complete
f the extent to which smaller banks held internationalized assets but also, more importantly, the extent to which smaller banks were exposed to largerInternationalized Banking and National Preferences on European Central Bank Supervision in Banking UnionDavid Howarth, University of LuxembourgDavid. Howarth_Quaglia_final_WEP_Completety schemes.This paper contributes to three main bodies of scholarly literature. First, it adds to a small but growing political economy literature on financial systems — starting with Zysman’s (1983) pioneering work, followed by Allen and Gale (2000), Busch (2009), Deeg (2010), Hardie and Howarth (2 Howarth_Quaglia_final_WEP_Complete013) and Hardie et al. (2013) which engage in a comparative analysis of financial (or specifically banking) systems. Second, the paper contributes toHowarth_Quaglia_final_WEP_Complete
the (limited) comparative political economy literature on Varieties of Capitalism and the financial and sovereign debt5crisis (Hal) 2014) and specificGọi ngay
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