Who should oversee the banks?
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BANKING

Who should oversee the banks?

The trend in Europe is for banking supervision to be split off from central banks. So, after Emu, who should have ultimate responsibility for the safety of the banking system: national central banks, the European Central Bank, or some new regulatory agency?

Life under the euro


Europe's financial regulators claim that Emu will not lead to significant changes in banking supervision. Although there are some signs that regulatory bodies are moving towards a European model of separating monetary policy responsibility from banking supervision, as evidenced by the UK government's decision to remove supervisory responsibilities from the Bank of England, the official line is that this trend has nothing to do with European economic and monetary union. The challenges that Emu will bring to the regulatory community will be second-order ones; they will come about as a result of the changes that Emu will bring to the banking market itself.

For many industries, the most profound implications of Emu will spring from competitive pressures arising from the removal of distinctions between markets. In financial services, however, national boundaries within Europe have been obsolete since the second banking coordination directive (2BCD) came into effect in 1993. It is not obvious, for example, that transaction costs in currency dealings are a significant barrier to French banks that want to lend in Italy. Rather, national banking franchises have been preserved because all but the very largest corporate customers will only do business with a familiar name.


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