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

Although younger than CESR, both CEBS and
CEIOPS also published standards aimed at national
supervisors, with a view to coordinating national
approaches 178 .
The establishment of the three “Level 3” Committees
does however not mean that all previously existing
forums have disappeared. Currently active forums
include the Banking Supervisory Committee (BSC), a
committee established by the European System of
Central Bank (ESCB) to assist in the ECB’s role in
prudential supervision, as well as the Groupe de
Contact, a forum for exchange of views and
practices between regulators and the conference of
insurance supervisory authorities (CIS), a forum for
exchange of views and practices between regulators.
4.2.4.2.2 Member State level
At present, the legal framework for the supervision
of credit institutions (as for insurance undertakings
and securities firms) is firmly grounded in one of the
core principles of the internal market, that of home
country control, which allows a financial institution
based in one country to be supervised by its national
competent authority. More precisely, it allows a firm
to provide services in another country or to open a
branch in that country while being supervised by its
national supervisor 179 . However, this principle does
not generally apply to cross-border business performed
on the basis of subsidiaries: when a firm decides to
open a subsidiary in another EU Member State, that
subsidiary becomes subject to the control of the host
Member State.
4.2.4.2.3 Cross-border supervision
The fact that the principle of home country
supervision does not apply to subsidiaries located in
another Member State has led to criticisms in recent
years. Specifically, a number of internationally-active
banks have argued that they operate on the basis of
business lines, which are European in scope, and that
this should be reflected in the organisation of
supervision in Europe.
This led some banks to ask for the supervisory
structure to be changed, for example by establishing
a single EU supervisor, a two-tier system of banking
supervision or a system of lead supervisors 180 .
With the adoption of the Capital Requirements Directive,
which transposes the new Basel II International
Framework into EU legislation 181 , the EU legislator
has brought few but substantial changes to the EU
framework for the supervision of banks. As an
illustration, the Directive enhances the powers
granted to the “consolidating supervisor”, defined
as the competent authority of the Member State
where the head office of a group is located, in the
case of a credit institution with activities in different
Member States. Specifically, the consolidating
supervisor has the final say in some specific areas of
banking supervision (i.e. the validation of internal
models), in situations where the different authorities
responsible for the supervision of a bank cannot
reach agreement. This is an important provision, as
for the first time the competent authority of a
Member State can theoretically go against the view
expressed by the competent authority responsible
for the subsidiary of a banking group.
The Capital Requirements Directive also clarifies the
mechanisms in place for Member States to cooperate,
coordinate their actions and exchange information.
In addition, certain provisions of the Directive aim at
increasing the convergence of supervisory practices
across the European Union, such as Article 144,
which forces competent authorities to disclose
information. Finally, in the area of banking, the
creation of the “Level 3” committees is widely seen
as an opportunity to facilitate the supervision of the
financial industry at the European level.
178 For example, CEBS published on 21 December 2004 “guidelines on prudential filters for regulatory capital”; CEIOPS published in September 2005
“recommendations regarding the implications of the IAS/IFRS – Introduction for the prudential supervision of insurance undertakings”.
179 There are however exceptions to this general principle. For example, with respect to liquidity risk, the supervision of a branch is the responsibility of the
competent authority of the Member State where that branch is located.
180 See for example three recent publications by the European Financial Roundtable: “EFR recommendations on regulation and supervision”, 28 Oct 2003; “EFR
report 'Towards a lead supervisor for cross border financial institutions in the EU'”, 15 Jun 2004; “Third EFR report on lead supervisor concept”, 29 Jun 2005.
181 The Basel II framework, published by the Basel Committee on Banking Supervision in June 2004, revises and upgrades the original Basel Accord of 1988 on
minimum capital requirements for banks. The Capital Requirements Directive, adopted in the European Union to transpose the Basel II framework, was
adopted in 2005 and published in the Official Journal of the European Union in June 2006. Formally, the Capital Requirements Directive consists of two
separate texts: Directives 2006/48/EC and 2006/49/EC.
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