The post-Crash re-ordering of Europe’s financial system is coming to an awkward phase – rather like striding across a chasm. One foot is still on the shaky ground after the Crash and the other is past the point of no-return on the way to the presumed financially stable ground on the other side.
On that side is a world of safe banks lending to the real economy and partially funded by knowledgeable investors taking a modest risk. Those same investors will also be buying securities to provide an alternative source of funds to the economy – secure in the knowledge that Capital Markets Union will provide a safe market structure for their investments. The snag is that there is still quite some uncertainty about the exact location of the cliffs at the edges of the chasm.
Taxpayers have revolted at the idea of bailing out large banks and have insisted that no bank be “too big to fail” (TBTF) so legislators have responded by enacting a complex and sophisticated set of laws to ensure that losses fall on shareholders and then on some classes of bond-holder, while ensuring that small depositors/voters are left secure. The G20 Head of Government have demanded that the global playing field be level and set up the Financial Stability Board (FSB) to orchestrate the process.
The EU responded by enacting a battery of laws to eliminate the risk of TBTF by making it possible to “resolve” banks yet maintain their key functions within the economic system. These measures include: Capital Requirements Directive (CRD), Capital Requirements Regulation (CRR), Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR). Some of these include secondary legislation from the European Commission and a vast array of Implementing Technical Standards (ITS) and Regulatory Technical Standards (RTS).
However, second thoughts are now setting in about whether this regulatory tsunami may have gone too far and, in November 2016, the Commission published a package of proposals that included a softening of the resolution measures in some key respects. This is not surprising as a recent Commission staff paper laid bare some of the problems stemming from all these measure interacting with each other. [...]
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© Graham Bishop
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