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Banking Union's impact on financial stability - holistic approach

Banking Union's impact on financial stability - holistic approach

Klaudia Zielińska-Lont

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Prudential supervision of credit institutions in the European Union has for a long time been the responsibility of national bodies, even though this did not match the international character of the activities of many supervised banks. After the establishment of the banking union's Single Supervisory Mechanism this has changed particularly for systemically important credit institutions, that now fall under the direct, coordinated supervision under the auspice of the European Central Bank.

There was a great deal of speculation around what changes the banking union would bring to the financial sector in Europe, yet the net impact of the Single Supervisory Mechanism on financial stability and competitive position of the supervised credit institutions remains largely unknown. This monograph presents a holistic analysis of the impact that the reform of the EU's financial safety net had on the banking sector. To make such evaluation possible, a dedicated synthetic indicator was designed to quantify the net impact of harmonized prudential supervision on the stability of credit institutions. The results signal that the establishment of the Single Supervisory Mechanism was a success and that the proposed synthetic indicator can serve as an early warning tool for authorities tasked with safeguarding financial stability.

List of Acronyms               9

 

Introduction      11

 

Chapter 1. Financial stability and its safeguards        15

1.1. The definition of financial (in)stability in the literature     16

1.2. The financial safety net            19

1.3. Financial market supervision models    21

1.4. Micro- and macro-supervision models 24

1.5. Statutory and implied responsibilities of the central bank in terms of ensuring financial stability         26

      1. The central bank’s involvement in financial market supervision          27
      2. The central bank as a lender of last resort                30

1.6. The Basel Committee on Banking Supervision    31

Summary            36

 

Chapter 2. Creating a single EU financial market      39

2.1. Early steps towards financial market integration                40

2.2. EU regulations harmonising the financial markets until 2008          44

2.3. Early crisis response 51

2.4. Long-term solution proposals 53

2.5. Legislative changes – as of 2010            56

Summary            60

 

Chapter 3. The European Banking Union    63

3.1. The genesis of the banking union          64

3.2. The Single Supervisory Mechanism       66

3.3. The Single Resolution Mechanism         72

3.4. The European Deposit Insurance Scheme           79

Summary            83

 

Chapter 4. The impact of the banking union on the banking sector     85

4.1. Comparing research on the banking sector with the proposed method       85

4.2. Characteristics of the indicators selected for the study    88

      1. Profitability indicators    90
      2. Risk exposure indicators               92

4.2.3. Liquidity indicators        93

4.3. Constructing the synthetic indicator     94

4.4. The construction stages of the synthetic indicator            97

4.5. Study results               104

Summary            107

 

Conclusion         109

 

References        111

 

List of tables       131

 

List of figures     133

  • Title: Banking Union's impact on financial stability - holistic approach
  • Author: Klaudia Zielińska-Lont
  • ISBN: 978-83-8220-745-3, 9788382207453
  • Date of issue: 2022-01-12
  • Format: Ebook
  • Item ID: e_2bbx
  • Publisher: Wydawnictwo Uniwersytetu Łódzkiego