European Economic Governance in the Age of Turbulence
Edited by Carlo Secchi and Antonio Villafranca
Chapter 3: Concrete Steps Towards More Integrated Financial Oversight: The EU’s Policy Response to the Crisis
Karel Lannoo 1. INTRODUCTION1 The financial crisis sounded a rude wake-up call for EU policymakers and confronted them with the limits of the present framework for European financial supervisory cooperation. What had been established and functioned well during good times proved completely inadequate for crisis situations. In the absence of a European safety net or a European crisis coordination mechanism, EU member states fell back on national responses, which now threaten to unravel the single market. Financial market integration had made powerful strides in the years leading up to the start of the financial crisis. Assets held by the 15 largest EU banks in other EU countries had doubled in the period 1997–2006. Several EU countries had become bridgeheads to a mighty financial services industry, active all across the globe. But financial supervision had not kept pace with these developments. Supervisors are by and large still working within the same structures as before the start of monetary union, with the home country ultimately in charge of the supervisory and lender of last resort functions. In several EU member states, including a country as large as the United Kingdom, the banking sector is five times larger than the GDP (Gross Domestic Product) of the country in question. The title of this chapter is reminiscent of a CEPS (Centre for European Policy Studies) study published some 18 years ago, entitled Concrete Steps towards Monetary Union (Gros and Thygesen 1990). Although we are fully aware of the difference in significance between both...
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