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A single, strong supervisory system better than a decentralised one

Anneli Tuominen, Director General of the Financial Supervisory Authority (FIN-FSA), considers a single system of banking supervision necessary in order to restore confidence in the financial system and in supervision itself. Stricter regulation is also needed to avoid future crises. ‘It is, however, essential to find the right balance between economic growth and regulatory intervention,’ noted Tuominen at FIN-FSA’s international conference on Tuesday.

‘We cannot afford another financial crisis like the present one, which has been very costly from the point of view of both tax payers and economic growth. Reforms are therefore needed to both regulation and supervision. The net effect of the reforms will certainly be positive,’ summarised Tuominen. According to a Commission estimate, between 2008 and 2011 European countries provided EUR 4,500 billion in bank support, including guarantees. Financial crises also deepen and prolong recession in the real economy. In earlier banking crises, as much as over a fifth of GDP, on average, has been lost.

Tuominen also emphasised that the principle of proportionality should be taken into account in regulation. ‘Regulation has largely been issued with a view to the risks and business models of large international banks. The suitability of all the regulatory reforms for small market participants should still be assessed in a critical manner.’

Tuominen repeated FIN-FSA’s position that single supervision is better than the current nationally based supervisory system. Supranational supervision is able to identify cross-border risks more effectively and enhance the credibility of the banking system and supervision, because of its independence of national interests.

Tuominen recalled that the FIN-FSA had already pointed out the need for supranational supervision before the financial crisis erupted, with the objective of bringing greater efficiency to the supervision of large multinational banks, but still saw open questions in the future model. Nordea Bank’s and Danske Bank’s subsidiaries operating in Finland will come under direct ECB supervision, while their group-level supervision will be the responsibility of the Swedish and Danish supervisors. Tuominen, in fact, hoped that Sweden and Denmark would also join the Single Supervisory Mechanism as soon as possible, with the aim of ensuring harmonised and balanced supervision.

The present conference, organised annually by the FIN-FSA, addressed issues relating to the banking union and banking sector regulation and the latter’s impact on the banking businesses and the functioning of the economy. Presentations at the conference were given by Erkki Liikanen, Governor of the Bank of Finland; Vítor Constâncio, Vice-President of the European Central Bank; Andrea Enria, Chairperson of the European Banking Authority; John Berrigan, Director for Financial Stability at the European Commission; Christian Clausen, President and Group CEO of Nordea Bank; Sixten Korkman, Professor of Aalto University; and Pentti Hakkarainen, Deputy Governor of the Bank of Finland and Chairman of the Board of the Financial Supervisory Authority.

Source: http://www.fin-fsa.fi/en/