Editor's note

For centuries, the financial institutions and banks were the major “signs” of national sovereignty. Therefore the EU authorities were hesitant to take drastic integration measures in financial services. Except for introduction of the common currency, the euro: common market needs common currency! 

Since introduction of € (about 15 years ago), this new global currency accounts presently for a little over a quarter of world reserves; $ share is two-thirds (on all keyboards one can find a $ sign, not the €).

However, the latest Service Directive [123/2006] –fully implemented by the member states by 28 December 2009 (almost at the same date as the new Lisbon Treaty) excludes “financial services” (as well as transport, health care, audiovisual, etc.) from the EU common efforts.

The Directive divided the whole service sector almost equally in competences: 12 spheres covered by the EU integration and 10 spheres still within the member states’ jurisdiction. 

Even the present Treaty (art.136 TFEU) provides rules for “deeper financial integration” only in the euro-area, i.e. presently 18 states; other 11states are regarded as “volunteers” in this process!

Single set of rules

Global financial crisis changed drastically approaches to banks and other financial institutions. In June 2009, the Commission recommended a single set of rules (called “rulebook”) for European financial institutions –about 8.300 banks for the then EU-27 member states were taken under stricter control; these rules apply from January 2014. They concentrate on the following issues:

·         New standards on bank capital, known as Basel III agreement (the agreement is a huge book of about 600 pp); it entered into force in July 2013;

·         Rulers for sufficient capital reserves & liquidity requirements;

·         Management in banks (as well as globally) and new approach to bonuses;

·         Deposits guarantee scheme - € 100.000 for natural persons (30% of funding could be made of payment commitments). The Commission started to apply “junior creditors’ losses” principle in the EU competition policy since August 2013.

Banking issues, national budgets & real economy are closely interrelated. The main interconnections are gone through:

·         Convergence & competitiveness instruments (CCI) are to be prepared between the member states and Commission;

·         “contractual arrangements”: country-specific recommendations (CSRs) within the European Semester; and

·         Euro bills & Eurobonds: short-term government debt papers with 1-2 years maturity to reduce negative feedback between sovereigns and banks; Green Paper on stability bonds was prepared in 2011.

Banking union’s main pillars and approach to “increased” fiscal & monetary integration in the member states/Baltics.  

There are –so far- five main banking union’s pillars:

1.      Single supervisory mechanism, SSM, which is fully operational from November 2014; this is the time when full-scale supervision starts. ECB is the main EU supervisory institutions; it has to get used to the new role… SSM’s first chairman is already nominated.

Direct supervision is to be exercised for the European banks with about 30 bln € assets or at least 20% of a member state’s GDP. According to the ECB’s assessment, there will be about 130 such banks.

2.      Single Resolution Mechanism, SRM, which will generally control implementation of the above-mentioned Directive.  

3.      Recapitalization of the banks/financial institutions, mainly through ESM, with a maximum exposure of € 60 bln.

4.      Stress-tests for banks and financial institution conducted by the ECB and the Commission (previous stress tests were quite successful in 2009, 2010 and July 2011). 

5.      Supranational deposits guarantee schemes.

Quite notable that initially, there were just four banking union’s blocks: deposits guarantee schemes, resolution authority & fund, single supervisor and single rule book.  

Although banking union is mainly for 18 MS in euro-zone, though other states are expected to join; however, some already abstained, e.g. generally, in the states outside the euro-area, such as the UK (regardless of the fact the EU “banking authority” is in London), Sweden; others are “thinking”, e.g. Denmark. Indeed, it’s difficult, so far, to combine national supervision with the European dimension in the heads of some politicians. 

In the 18 euro-zone states, there are 6.000 banks & financial institutions under supervision, which makes it over 300 for a member state.

Financial “injections” into the member states’ financial system is huge: between the end of 2008 and up to the end of 2011 Commission approved (otherwise, it is regarded as violation of competition in the single market) 4,5 trillion euro of state aid to financial institutions; this is 37% of the EU-28 common GDP.

The EU’s financial assistance is still quite important for the member states. Thus, recently Greece acquired a new “assistance pack” of 8,3 bln euro; in 2010 and 2012 the country got, correspondingly, 110 and 130 bln euro in financial support.

Supervision within the EU financial institutions

Following the European Parliament Plenary vote on the legislative resolution for the European Banking Authority (EBA) Regulation and the Council agreement conferring specific supervision tasks on the European Central Bank, the European Union formally adopted (during 12.09.2013 - 29.10.2013) the creation of a bank single supervisory mechanism (SSM), led by the European Central Bank, with the objective to strengthen the Economic and Monetary Union.

Both legal texts were published in the Official Journal on 29 October 2013:

= Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions;

Regulation (EU) No 1022/2013 of the European Parliament and of the Council of 22 October 2013 amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards the conferral of specific tasks on the European Central Bank pursuant to Council Regulation (EU) No 1024/2013.

Reference: http://ec.europa.eu/internal_market/finances/banking-union/index_en.htm

Thus, taking the EU initiatives from January 2011, three European supervisory authorities were established in the following financial and economy sectors:

·         Banking Authority, incl. recapitalization of banks;

·         Securities & Market Authority, for credit rating agencies and capital market;

·         Insurance & Occupational pensions Authority.

Needless to say that all EU-28 have to participate in these authorities…

Relentless pace of reforms

In the recent speech “Turning a corner in financial services”, M. Barnier, Commissioner responsible for the EU internal market and services underlined that the EU is nearing the end of the rule-making phase and entering a period of implementing and enforcing those rules.

(See: European Commission - SPEECH/14/268; 1 March 2014; In: 

http://europa.eu/rapid/press-release_SPEECH-14-268_en.htm