Increasing Systemic Risk for EU-Banking

The danger that a collapse of a bank will trigger further breakdowns is not confined to single states anymore. Rather increasing integration of financial markets has created transborder systemic risk in the EU.

Of this opinion is the predominant part of 257 financial analysts and institutional investors in Germany which the Centre for European Economic Research, Mannheim, has recently questioned as part of its monthly ZEW Financial Market Survey. 54 percent of the financial experts believe, that systemic risk has increased on a European level in the past ten years, only 13 percent believe it has decreased.

How the structures of banking supervision are to be designed as a reaction to this EU wide systemic risk is controversial. In principle two possibilities exist: the creation of a EU-level supervisory agency or increased co-operation of the national supervisors. The analysts do not agree on this issue. 51 percent prefer increased co-operation, while 49 percent would like to see a EU supervisory body. Especially controversial is which role the central banks shall take on. Central bankers plead for a strengthening of the Banking Supervision Committee at the European Central Bank (ECB) in order to improve co-operation on the EU-level.

A further possibility is the Eichel-Brown-Proposal, expressed by the German and British ministers of finance. It calls for the creation of a new panel which is to be largely independent of the ECB. 48 percent of the experts believe that European banking supervision should be located at the ECB. 36 percent believe that the ECB should not be involved in banking supervision.

Contact

Dr. Martin Schüler, E-mail: schueler@zew.de