Transparency Means Banks Won't Need to Be Saved

Transparency Means Banks Won't Need to Be Saved


When the term of the head of the European Central Bank Single Supervisory Mechanism (SSM), France’s Danièle Nouy, was about to expire, the European Parliament’s Economic and Monetary Affairs Committee asked a selected group of academics to scrutiny, in four different reports, the first SSM term and to identify the challenges facing its new head, Italy’s Andrea Enria. The authors of two of these four reports are Bocconi professors: Andrea Resti and Elena Carletti with Brunella Bruno.
Professor Resti focuses on three challenges and three possible improvements. Low profitability is probably the the worst danger facing the banking sector. Andrea Resti proposes to alleviate the burden of compliance costs and overlapping requirements. “Banks that protect themselves with heavy armor are safer, but they move like turtles”.
Shadow banking is another source of concern. It accounts for 40% of the assets held by the EU financial system and it is deep interconnected with banks: an implosion would have dramatic repercussions. “The key issue, though, is poor governance. Misconduct by managers is not rare. Their power is not counterbalanced by board members equipped with an adequate technical background”.
Professor Resti suggests simplifying the regulatory framework and sanctions, and giving the head of the SSM control of budgets and staffing. The head of the SSM currently relies heavily on staff supplied by national authorities. This negatively affects the effectiveness of supervisory action. To overcome this constraint, the ECB has made significant use of external consultants that raise concerns in terms of conflict of interest. “Accountability is the third challenge for the SSM. The ECB has been criticized for not making its processes clear enough and supervisory processes uniformly implemented. Tasks, methods and decisions must be transparent”.
Elena Carletti and Brunella Bruno agree on the latter recommendation. If professor Resti sees the glass half empty in the first part of his report, they see it half full. In the first term, the SSM has addressed capital inadequacy; has rebuilt confidence in regulatory capital ratios; has addressed the non performing loans issue; made stress tests an important component of the supervisory assessment; and has enhanced financial integration. “This is the area in which least has been done”, professors Carletti and Bruno say. “We recommend weakening the bank-sovereign nexus in order to avoid the so-called diabolical loop. One way of doing this is to introduce safe assets and a European deposit guarantee scheme. It would be beneficial in encouraging cross-border consolidation”.
Other challenges for the head of the SSM highlighted by professors Carletti and Bruno are the strengthening of transparency and accountability and the reduction of costs of banking supervision. “An over-demanding supervision may lead banks to try to circumvent rules and to become overly risk-averse, thus dampening credit supply”.

Read more about this topic:
Gianmarco Ottaviano. The Cost of Non-Europe
Electoral Results Explained Through Emotion Theory
The Four Pillars of European Capitalism
Human Rights Are Increasingly Important
The Robot Vote Has Brought Success for Nationalists
The Importance of Reputation in Public Contract Bids
Finding a Compromise for Tomorrow’s Relations Between UE and UK
Foreign CEOs Get More out of Acquisitions
When It Comes to Fake News, Don’t Imitate the USA
A Common Identity Could Derive from the Protection of Civil Rights
Productivity Cannot Be Balanced with Computers
Europe Should Opt for Qualified Majority Voting on Taxation Issues
My Europe: Seven Bocconi alumni who work for various EU institutions tell us what Europe means to them

by Claudio Todesco


All News
  • Bocconi's School of Law Joins the American Society of Comparative Law

    The association, founded in 1951, publishes the prestigious American Journal of Comparative Law  

  • Saving the Oceans from the Land: The Role of Businesses

    Two thirds of Mediterranean businesses are unaware of their impact on marine sustainability or are inactive in mitigation. But there is hope, thanks to the 34% of companies defined as sustainability leaders, according to a Report for the One Ocean Foundation by researchers from SDA Bocconi, McKinsey, and CSIC  


  November 2019  
Mon Tue Wed Thu Fri Sat Sun
        1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30  


All Seminars
  • Bank Transparency and Deposit Flows

    Itay Goldstein, Wharton University of Pennsylvania

    Meeting Room 2.e4.sr03 - Via Roentgen, 1

  • Bayesian Auctions with Efficient Queries
    Economic Theory, Decision Theory and Experimental Economics

    Jing Chen (Stony Brook University) Paper

    Seminar Room 3.e4.sr03 - Via Roentgen 1