Authors Iain Begg | Gabriel Glöckler | Anke Hassel ... - The Europaeum

egulatory and supervisory differences, harmonising supervisory
standards and reigning on discordant national supervisors, the ESFS
could gradually mature into a powerful EU-wide regulator.
The ECB as macro-supervisor
A second alternative would be to assign supervisory powers to the ESCB,
an option compatible with EU Treaty provisions. This would also allow
the ECB to better pursue the parallel task of financial stability. Article
105.6 of the EU Treaty provides the possibility of transferring prudential
supervision of banks and other financial institutions (except for the
insurance industry) to the ECB. In such an event the ECB should be
assigned full powers of macro supervision. The ECB would not become
the sole supervisor of banks but act “within a single institution” with
national market supervisors and central banks so that broader financial
stability supervision is combined with the day-to-day oversight of
individual banks. 18 The distinction between macro and micro-supervision
is necessary in order to comply with the subsidiarity principle. From the
ECB’s standpoint, the macro-prudential authority has to have access to
micro-prudential information and vice versa; an exchange of information
that can be better achieved within a single institution. 19 The ECB for its
part would be willing to play a role in micro-prudential supervision as well
but nobody should expect it to supervise markets.
One obvious weakness with this option is that it is not very favourable for
countries, like the UK, who are not in the Eurozone. An additional
weakness of the solution of assigning supervisory functions to the ECB
according to article 105.6 is that the Treaty explicitly delimits the ECB’s
new supervisory role to “specific tasks” related to banking supervision –
excluding the insurance sector. This represents an inferior arrangement
when compared to a full “blanket” supervisory authority which covers the
entire financial system.
Regulatory interventions for
promoting financial stability
Regulatory and supervisory policies have a major impact on the size and
nature of the information asymmetries involved in the functioning of
financial markets. Disclosure requirements for securities, regulatory
standards for bank capitalisation, and supervisory practices, all influence
and seek to improve the risk/return characteristics of investment. 20 In
principle, not only banks but any financial institution subject to systemic
risk must be covered by regulation. Highly leveraged hedge funds when
moving together as a herd generate systemic risks, thus requiring macro-
Chapter 2 – George Pagoulatos 39