Professor Schoenmaker concluded by stressing that all supervisory structures had to adapt to market development, and cater for the emergence of European financial groups and centralised risk-management. This would both allow supervision of the European financial market and stimulate economic growth.

Doing what is “politically feasible”
Irmfried Schwimann, Head of Unit for Financial Services in the Directorate-General for the Internal Market and Services, European Commission, praised ELEC’s paper for confronting the challenge of an accelerating financial industry. However, she was disappointed that it failed to mention the moves the EU is already making to supervise the European financial industry.

The Commission is currently working to overcome the current segmentation of supervisory practices, stemming from the national supervisory systems. Unfortunately, said Ms Schwimann, most EU Member States have little appetite for making the current system more homogeneous as they prefer the status quo, even though it makes cross-border intervention impossible. However, she argued that the most pressing issues to tackle are crisis-management and alleviating the cross-border problems facing companies.

Ms Schwimann finished by reassuring the audience that the Commission would not be taking a slow “Darwinian” evolutionary approach to financial integration, as it wanted to see immediate progress while being realistic about what was political feasible.

Marianne Kager, Chief Economist at the Bank Austria Creditanstalt, stressed the enormous increase in European banks’ cross-border activities and their “internationalisation” over the last five years, with many of their assets now in foreign hands.

She then outlined various issues that need to be addressed before a general supervisory body can be set up. She pointed out that national supervisory authorities have different competences, many of which cannot be devolved to a pan-European supervisor. If the EU were given a mandate to take over national supervisory competences, this would have to be written in the European Treaty. She also questioned the feasibility of harmonising national supervisory rules, since regulators would still be bound to act according to their national rules.

Ms Kager argued it was important to harmonise banks’ legal frameworks and liquidity requirements across Europe. However, she also foresaw difficulties in getting Member States to agree to give up some political responsibilities.

She said the integration process should begin by harmonising the legislative framework of supervisory rules. This would involve determining which national rules need maximum harmonisation, which require minimum harmonisation, and in which cases it would be possible to recognise the primacy of the host country’s legislation.

“Being prepared” in the financial sector
Graham Bishop, the Principal of GrahamBishop.com, agreed that given the fast pace of changes in the financial field, a central risk-management system was overdue. He said that like boy scouts, the Union had to “be prepared” for bank crises, particularly those involving deposit guarantee schemes. As an example he cited the Swedish bank crisis, when Sweden lost growth corresponding to a quarter of its GDP. He warned that while the European Central Bank (ECB) could provide liquidity in some crises, it might not always have adequate resources.

Mr Bishop raised the question of whether bank deposit guarantee schemes were purely national schemes or whether politicians should be prepared to step in to protect depositors if a subsidiary in another country failed. He also wondered whether government moves to support a failing bank might constitute illegal state aid.

Freddy Van den Spiegel, Chief Economist and Director for Public Affairs, Fortis Bank, noted that many banks cited in ELEC’s report belonged to the European Financial Services Roundtable, which already supported the idea of a supervisory regime. He shared other speakers’ concerns about the lack of urgency among politicians to create a supervisory regime, as they only stepped in when a crisis occurred.

Given that 12 countries in Europe share a common currency, financial integration, including the single euro payments area (SEPA), is helping to drive the ‘European’ process. National supervisors must go beyond their remit to protect national depositors, as financial services are now fully pan-European.

Mr Van den Spiegel suggested a “college” of supervisors to exchange information and take decisions across borders, headed by a chair with the power to mediate and take decisions if the college did not agree.

He was also critical of the financial services sector’s double lack of vision: about the need for a European financial architecture and the issue of what mechanism the financial sector should use to deal with potential risks.