The Case for a European Banking Charter
IMF Working Papers, July 1, 2007
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Bibliographic details
- Authors: Martin Cihak, Jörg Decressin
- Published: July 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451867374.001
Summary
- Most financial institutions in the European Union (EU) are still based in one country, but a number of large financial institutions (LCFI) have systemic cross-border exposures.
- Nationally-segmented supervisory frameworks and national accountability for financial stability hinder optimization across borders of banks' operations and efficient and effective LCFI supervision.
- A full-fledged EU-level prudential regime that operates along-side national regimes—a European Banking Charter (EBC)—could harness market forces to establish a level playing field for financial sector competition, while plugging some significant gaps in Europe's financial stability framework without concentrating excessive powers.
Key findings and analysis
- Cross-border systemic exposures: Several LCFI have systemic cross-border exposures that are not fully addressed by national supervisory frameworks.
- Limits of national frameworks: Nationally-segmented supervision and national accountability impede cross-border operational optimization and LCFI supervision.
- EBC rationale: An EU-level prudential regime (EBC) operating alongside national regimes could:
- Harness market forces to establish a level playing field for financial sector competition.
- Plug significant gaps in Europe’s financial stability framework.
- Avoid concentrating excessive powers while improving supervision of cross-border institutions.
- Subject areas addressed: Banking; Competition; Deposit insurance; Financial crises; Financial markets; Financial sector policy and analysis; Financial sector stability; Solvency.
- Keywords highlighted in the paper: Banking Charter, Competition, Deposit insurance, EBC proposal, EBC regime, EU country, Europe, European Union, financial institution, Financial sector stability, Financial Stability, Financial System, insolvency regime, LCFI host country activity, member state, prudential regime, Solvency, WP.
Policy recommendations and implications
- Establish an EU-level prudential regime (European Banking Charter) that operates alongside national regimes to:
- Create a level playing field for competition across the EU financial sector.
- Address gaps in the financial stability framework that arise from national segmentation.
- Improve supervision and accountability for LCFI with systemic cross-border exposures.
- Design the EBC to balance EU-level coordination with limits on centralized powers to avoid overconcentration of authority.