A comparative analysis of the US and EU retail banking markets - Wsbi

In the European Union, contrary to this, there has
been an evolution towards a greater convergence of
the criteria for granting an authorisation to a credit
institution. This culminated in the adoption of the
second banking directive in 1989, which created
the single passport for credit institutions within
the EU, based on the three principles of minimum
harmonisation, mutual recognition and home country
supervision. The underlying reasoning was that in
order to make it possible for a credit institution to
provide services cross-border on the basis of home
country supervision and of the principle of mutual
recognition, it was necessary to enhance the confidence
between the Member States. The belief was that the
best way to achieve this was to increase the level of
harmonisation by introducing comprehensive
minimum requirements in an attempt to create a
level playing field for all EU credit institutions.
As a conclusion, while the American banking system
explicitly promotes competition between the different
categories of charters and between the different
agencies in charge of the chartering by way of
charter choice and by offering even a possibility of
charter conversion or change, the European system
seeks to create an internal market which removes
the possibility for regulatory arbitrage. In the
European Union, this means a minimum level of
harmonisation (in terms of authorisation criteria, of
supervision, etc.) in order to create a level playing
field for all market participants, wherever they are
active in the EU.
4.2.4 Supervision
As explained above, in both the US and the EU the different
areas of the financial services sector have generally been
supervised separately. Although in some cases this has changed
in terms of structure, the focus of supervision in the
different areas is generally still different and well-defined:
- Banking supervision covers a wide range of issues:
consumer protection issues (rules on conduct of business
and the disclosure of information), micro-level prudential
supervision (dealing with the soundness of individual
institutions) and macro-level prudential supervision
(dealing with systemic issues). Traditionally the latter has
been the responsibility of the central bank. The former
have usually been the responsibility of a separate agency.
Each of these types of supervision covers distinct issues
that need to be addressed.
- Supervision in the securities sector has been traditionally
more focused on ensuring the smooth functioning of the
financial markets and on ensuring that investment firms
comply with the appropriate conduct of business rules.
- In the insurance sector, the focus has traditionally been
more on making sure that insurance companies are
capable of paying their duties.
In this section, we will focus in particular on the supervision
of the banking sector.
4.2.4.1 United States
In the US, the supervision of banks is determined
by the type of institution that has to be supervised.
As such, a banking institution chartered at the state
level will be primarily supervised by the relevant state
department, but will also have a federal supervisor
(either the Federal Reserve or the FDIC). In contrast,
a banking institution chartered at the federal level
will exclusively be supervised at the federal level.
As mentioned above, in the US, the bodies which
play a role in the financial services area generally
have both a regulatory and a supervisory function.
4.2.4.1.1 Supervision of federally-chartered
banking institutions
Banking institutions with a federal charter are
supervised by their chartering body: the OCC
supervises national banks, the OTS supervises thrifts
and the NCUA supervises credit unions. The Federal
Reserve supervises all bank holding companies, their
non-bank subsidiaries and their foreign subsidiaries.
In addition, the FDIC plays a role in the supervision of
individual entities, as the back-up supervisor for all
insured banks and thrift institutions.
4.2.4.1.2 Supervision of state-chartered banking
institutions
The situation is different for state-chartered banking
institutions, which are supervised both by the state
regulator and by a federal body. For example, statechartered
commercial banks, apart from being
supervised by the state department in charge of
banking supervision, are supervised either by the
Federal Reserve (if they are members of the Federal
Reserve system) or by the FDIC (if they are not
members of the Federal Reserve system).
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