| Author (Corporate) | European Parliament: European Parliamentary Research Service |
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| Publisher | EU |
| Series Title | In-Depth Analysis |
| Series Details | March 2017 |
| Publication Date | March 2017 |
| Content Type | Report |
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Please note: Each In-Depth Analysis is assigned a DOI (digital object identifier), which is a safe and long term way of ensuring a hyperlink to the full text of this report. However, when ESO creates this record, on occasion the DOI still has not been activated by the EU Bookshop. If you find the source url hyperlink does not work please use the alternative location hyperlink listed as a related url.Three separate volumes produced by external authors for a public hearing with the Chair of the Single Supervision Mechanism in the ECON Committee of the European Parliament on 23 March 2017. Below is an abstract for each report: 1. This paper was drafted under supervision of the Economic Governance Support Unit. Misconduct (conduct) risk may be defined as the risk of losses to an institution arising from an inappropriate supply of financial services, including cases of willful or negligent misconduct. Based on EBA data, it generates the vast majority of operational risks expected by Europe’s top banks (€71bn according to the 2016 stress test). According to public-domain figures, misconduct costs have been rising strongly for large European banks in 2011-2015, although no European lender matches the costs experienced by large US banks. The distribution of losses looks highly skewed, with a few exceptionally high costs. More than 55% originates from traditional areas like commercial and retail banking. There are signs that conduct costs (per unit of total assets) have been stronger for small and mid-sized institutions, and for banks that ended up in resolution or requiring some other form of extraordinary support. Conduct risk is addressed by a number of EU-wide regulations and supervisory standards. Still, only half of the EU’s competent authorities include conduct risk in their supervisory examination programmes. To discipline conduct risk ex post sanctions play a useful role, but should be complemented by ex ante tools like improving the quality of bank governance, preventing remuneration schemes that encourage inappropriate practices, encouraging whistle-blowing and improving the clarity of regulations to remove grey areas. 2. This paper was drafted under supervision of the Economic Governance Support Unit. Bank regulators have the discretion to discipline banks by executing enforcement actions to ensure that banks correct deficiencies regarding safe and sound banking principles. We highlight the trade-offs regarding the execution of enforcement actions for financial stability. Following this we provide an overview of the differences in the legal framework governing supervisors’ execution of enforcement actions in the Banking Union and the United States. After discussing work on the effect of enforcement action on bank behaviour and the real economy, the authors present data on the evolution of enforcement actions and monetary penalties by U.S. regulators. The authors conclude by noting the importance of supervisors to levy efficient monetary penalties and stressing that a division of competences among different regulators should not lead to a loss of efficiency regarding the execution of enforcement actions. 3. This paper was drafted under supervision of the Economic Governance Support Unit. The US system for addressing bank misconduct through fines delivers a number of lessons for the EU with regard to the design of bank enforcement architecture and the need to develop common approaches across national and EU levels with a view to avoiding regulatory arbitrage. Following the crisis, the highest money penalties imposed on banks in the US related to mis-selling of financial products – a criminal offence falling under the remit of Department of Justice – rather than to breaches of prudential supervisory requirements. |
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| Source Link | http://www.europarl.europa.eu/thinktank/en/home.html |
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| Subject Categories | Business and Industry |
| Countries / Regions | Europe |
