A big day for European Union bank regulation

A couple of weeks ago, Europe’s biggest financial rule making aggregation reached its pinnacle, with its design to make banks sager and financial markets more transparent. Mark Newey discusses what this means for Eurozone banks, as well as the wider market.

european union bank legislationEurope’s biggest financial rule making smorgasbord since the creation of its single market over 20 years ago reached its pinnacle a couple of weeks ago, with its design to make banks safer and financial markets more transparent at long last. It marks the summit of an almost four-year period during taxpayer bailouts and binding together control of Eurozone banks under a banking union.

The votes in the European parliament cap the European bloc’s legislative response to a crisis that spread from the financial turmoil of 2008 to leave at one point the very existence of the euro in doubt.

The EU commissioner responsible for the reforms was relieved that Europe has managed to avoid the complete collapse of our financial system, however Europe continues to pay the economic and social price for this crisis. The centrepiece of the reforms was an EU-wide rule book to ensure shareholders and bondholders and not taxpayers, are first in line to pay for bank rescues. Within the banking union a common resolution system will enforce those rules – compelling Eurozone states to release their grip over their domestic banking champions, even though the jury is still out, which says that taxpayers will still bear the brunt of any future bailouts in the financial sector.

It comes alongside a complex overhaul of Europe’s capital markets, forcing this bank-dominated terrain to become more transparent hopefully, and imposing tougher surveillance on high rolling traders. Europe has in the past done a lot to integrate its markets, but the various rules and regulations were poor. However, it appears foundations have now been laid to assist financial stability and aid banking union.

The European parliament passed the hotchpotch of legislation in a final sprint to clear the decks before the May election. Regulators are now faced with the challenge of putting the highly complex legal texts into practice. It will be a huge job, like 100 works of Shakespeare in amount and complexity, mainly crafted by three EU financial watchdogs created just three years ago, based in London, (EBA) France (ESMA) and Germany (EIOPA) overseen by the European Systemic Risk Board (ESRB).

The shoulders of the likes of the European Banking Authority, the European Securities and Markets Authority and European Insurance and Occupational Pensions Authority have a lot resting on them, however the concern is do they have sufficient resources to start and deliver this massive task?

Mark Newey

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