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

4.2.4.3 Comparison
In the US, supervision in the banking sector can take
place either at the federal level (for federally-chartered
institutions) or at the state level (for state-chartered
institutions). In the latter case, a federal agency also
plays a supervisory function. In the EU, supervision of
banks takes place exclusively at the level of the
Member States; there is no agency responsible for
supervision in the European Union, nor is any
national agency entitled to supervise institutions
active in another Member State. However, branches
of a national institution located in another Member
State are supervised by the supervisory authority of
the home Member State, on the basis of the principle
of Home country supervision. Likewise, in the
case of subsidiaries, the “consolidating supervisor”
benefits from some specific powers, which have
been enhanced with the adoption of the Capital
Requirements Directive.
Another important difference between the two
systems relates to the level of competition between
supervisory authorities. While competition is promoted
in the United States as an efficient way to promote
financial innovation or dynamism, an important
characteristic of the European supervisory architecture
is the desire to ensure a level playing field for all
banks that are active in the EU, whatever their
country of origin, size or level of complexity.
Furthermore in the EU, recent developments in the
financial sector have lead to calls by certain actors
(notably internationally active banks) to change
radically the EU supervisory framework, for example
by setting up a single EU supervisor or by establishing
a two tier system, with a different supervisory
structure for institutions active in different countries
and for locally-active institutions. Such a system would
be more in line with the US structure, where banks
that are active in several states have the possibility to
opt for a federal charter, implying supervision at the
federal level by a federal agency.
The approach chosen in the EU, confirmed by texts
such as the Lamfalussy Report, the Capital
Requirements Directive or the European Commission’s
Green Paper on Financial Services Policy (2005-2010),
is however substantially different from the US
approach. As opposed to competition between
supervisors, the EU has introduced measures which
aim at achieving supervisory convergence.
Along the same lines, the EU opted for building on
the existing structures in the area of supervision,
instead of introducing radical changes. It should be
noted here that a partial replication of the US
framework in Europe would not be possible, given
that both systems are based on different building
blocks. Replicating the US supervisory structure in
the European Union would in fact require a complete
overhaul of the existing architecture.
4.2.5 Regulatory trends in the banking sector
The 20th century has been a period of varying regulatory
trends in the financial services sector of the industrialised
world, which has traditionally been particularly heavily
regulated. A number of regulations in this sector both in the
US and in European countries date back to the crash of
1929 and the ensuing great depression, in an attempt to
avoid a similar situation in the future.
Progressively, taking account of evolutions in the financial
markets, many of the measures taken following the 1929
crisis have been repealed, or amended. At the same time,
other measures have been introduced to address other,
more contemporaneous issues. An illustration of this are the
rules implemented to control the risks taken by financial
institutions.
This section will provide an overview of the regulatory trends
in both the US and the European Union, and will then
provide a comparison of these trends.
4.2.5.1 United States
4.2.5.1.1 Historical developments in the US
4.2.5.1.1.1 Background: from regulation
to deregulation
In the first half of the 20th century, regulatory
measures were taken in the US to limit the scope of
activities of financial institutions. Specifically, two
categories of measures can be mentioned: measures
which limit the geographical activities of banks and
measures which limit the activities in which the various
categories of financial institutions could engage.
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