Multinational banks: business model, regulatory developments
and implications for financial stability and integration
The European Banking Union:
where do we stand?
Andrea Generale
Bank of Italy
Elements of a BU
Banking union:
 Single supervisory mechanism (SSM)
 Common resolution framework
 Common deposit insurance system
Sequencing issue not optimal?
Schoenmaker trilemma: national fiscal policies, financial
stability, financial integration: to solve the trilemma need
all elements of a BU
2
Reasons for a BU
Long-term and short-term reasons:
1. Long-lasting objective: establish truly European supervisory
frameworks in order to cope with the systemic risks due to the
interconnectedness of financial institutions and markets in different
jurisdictions (Padoa-Schioppa)
2. Regulation and Supervision.
I am one of those who think that supervision, not
regulation, was the main problem: stronger enforcement of
the existing rules (supervision) would have sufficed to
avoid the disaster (Padoa-Schioppa).
3
Reasons for a BU
Problems with the current setting are clear:
Balkanization of financial intermediation
Ring fencing
Challenges to specific configurations of large cross
border banking groups (branches vs. subsidiaries)
Effectiveness of Supervisory colleges
Supervisory “styles” and spillovers
4
Reasons for a BU
Allow direct access to ESM funds
Break the bank-sovereign link
Increase transparency
Protect the ECB as a liquidity provider
5
Challenges
SSM without a European resolution toolkit would not be
credible and could even be counterproductive
Incentives problems
ECB will lack instruments for credible threat
National authorities (constrained in their fiscal capacity)
would not act
ECB action would impose fiscal costs at the national
level
=> risk of inaction and pressures on ECB as a liquidity
provider
6
Where do we stand
Preparatory work is proceeding fast
Key elements: leverage on national expertise while
avoiding segmentation in supervision
A common supervisory model (data, methodologies,
governance of day-to-day supervisory activity)
Centralized decisions with decentralization of tasks:
need the right balance between efficiency and
effectiveness
Transition to the steady-state is clearly an issue
Avoid a two-tier system
7
Multinational banks: business model, regulatory developments
and implications for financial stability and integration
The European Banking Union:
where do we stand?
Andrea Generale
Bank of Italy