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Nicolas Véron

Nicolas Véron

Nicolas Véron is a senior fellow at Bruegel, and a visiting fellow at the Peterson Institute for International Economics in Washington, DC. His research is mostly about financial systems and financial reform around the world, including global financial regulatory initiatives and current developments in the European Union.

Articles by Nicolas Véron

The Wirecard debacle calls for a rethink of EU, not just German, financial reporting supervision

June 30, 2020

The spectacular collapse of Wirecard AG should serve as a wake-up call for the European Union on the need to pool the relevant supervisory mandates at EU level.
Wirecard AG, the Munich-based payments and financial services company that was a member of the DAX index of Germany’s 30 leading blue chip stocks, collapsed spectacularly and filed for insolvency on June 25, 2020. Among many lessons, this disaster has revealed major gaps in audit regulation and accounting enforcement in Germany and by extension in the European Union (EU). Like in other areas of financial supervision, having oversight over financial reporting in an integrated EU market only at the national level generates perverse incentives that impair supervisory effectiveness. The policy response to this challenge should be to

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Banking regulation in the Euro Area: Germany is different

May 7, 2020

Despite progress in recent years towards a single banking policy framework in the euro area – a banking union – much of the German banking system has remained partly sheltered from uniform rules and disciplines that now apply to nearly all the area’s other banks. The resulting differences in regulatory regimes could generate vulnerabilities in the still-incomplete banking union, which is being tested in the context of the COVID-19 pandemic.
Two reports published in early 2020 shed new light on this challenge. The European Central Bank’s risk report on less-significant institutions is the first of what is intended to be an annual series. The impact assessment study on the most important differences between accounting standards used by banks in the banking union was prepared by legal

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Is the United States reneging on international financial standards?

April 16, 2020

The new Fed rule is a material breach of Basel III, a new development as the US had hitherto been the accord’s main champion. This action undermines the global order without being ostensibly justified by narrower considerations of US national interest.
The financial shock surrounding the COVID-19 pandemic has prompted the US Federal Reserve to temporarily loosen an important capital-to-asset ratio requirement for American banks. In so doing, the US is walking away from a decade-long commitment to global financial reform that it made in the wake of the global economic meltdown of 2008-10.
This breach, together with other recent US government actions, might signal a broader departure from the Trump administration’s general adherence in its first three years to international financial

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Banks in pandemic turmoil

March 24, 2020

The banking system is critical to society and requires attention and support. In doing so, however, tough love is preferable to complacency.
As the COVID-19 spread and policy reactions have disrupted markets, bankers on both sides of the Atlantic have called for relaxation of accounting standards introduced in the wake of the Great Financial Crisis, known as expected credit loss provisioning. These calls, like much bank lobbying on capital regulation, should be ignored by public authorities and accounting standard-setters. There is no perfect accounting thermometer for credit risk in banks’ loan books, but breaking the current thermometer in the midst of a crisis would do far more harm than good. 
Since there are two main sets of accounting standards in the world, the debate on expected

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The UK election viewed from continental Europe: Meh

November 29, 2019

It will take more than the vote on December 12 to make the continent pay attention to the UK. Viewed from the continent, the UK election is one more episode in a Brexit series that “jumped the shark” long ago. By: Nicolas Véron Date: November 29, 2019 Topic: European Macroeconomics & Governance Viewed from the continent, the UK election is one more episode in a Brexit series that “jumped the shark” long ago. It is increasingly difficult for continental audiences, by and large, to feel emotionally connected to the British political drama.Leaving aside the campaign’s superficial entertainment value, it is not even clear that very much is at stake from a continental perspective, given the UK government’s willingness to put off, repeatedly, its most difficult choices. It will take

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Brexit and Finance: Brace for No Impact?

October 14, 2019

Amid the daily high drama of Brexit, it is easy to lose track of the structural shifts, or lack thereof, that may be associated with the UK’s possible departure from the European Union. One of them, and not the least, is the potential impact on the European and global financial system. By: Nicolas Véron Date: October 14, 2019 Topic: European Macroeconomics & Governance A version of this opinion piece was also published on ispionline.itAmid the daily high drama of Brexit, it is easy to lose track of the structural shifts, or lack thereof, that may be associated with the UK’s possible departure from the European Union. One of them, and not the least, is the potential impact on the European and global financial system. London is currently the undisputed financial hub of Europe of

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Questions on financial services policy for Valdis Dombrovskis, Executive Vice-President-designate of the European Commission

September 30, 2019

Completing the banking union is the dominant task in the financial services area for the next five years. In the short term, the Commission should affirm its leadership by pushing for the creation of a credible EU anti-money laundering supervisory agency. By: Nicolas Véron Date: September 30, 2019 Topic: European Macroeconomics & Governance Mr Dombrovskis’s designated portfolio as “Executive Vice-President for an economy that works for people” covers a wide array of issues, including economic and monetary affairs and trade which are covered in separate blog posts in this series, as well as jobs and cohesion policies. Nevertheless, the allocation of supporting services gives him direct and sole authority over DG FISMA (the European Commission’s Directorate-General for Financial

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An Effective Regime for Non-viable Banks: US Experience and Considerations for EU Reform

July 22, 2019

The US regime for non-viable banks has maintained a high degree of stability and public confidence by protecting deposits, while working to minimise the public cost of that protection. EU reformers can draw valuable insights from the US experience. A review of the US regime supports arguments in favour of harmonisation and centralisation of bank insolvency proceedings and deposit insurance in Europe’s banking union.

This study was requested by the European Parliament’s ECON committee.

For 85 years, the US regime for non-viable banks has maintained a high degree of stability and public confidence by protecting deposits, while working to minimise the public cost of that protection.
With awareness of the difference in context, EU reformers can draw valuable insights from the US

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European Parliament election results: The long view

May 29, 2019

Following the latest European elections, the author updates his previous analysis of trends in the share of European Parliament seats among ‘mainstream’ and ‘non-mainstream’ parties.
By:
Nicolas Véron
Date: May 29, 2019
Topic: European Macroeconomics & Governance

Comments about the European Parliament election results are predictably all over the place, and typically reveal more about the commentator than anything else. To get a clearer sense of direction, it may be useful to compare the outcome not only with recent opinion polls, or the previous election, but also with all the other ones before.
My own perspective is affected by the fact I did exactly that after the previous round in 2014, when I published a chart and brief

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Taking stock of the Single Resolution Board: Banking union scrutiny

April 18, 2019

The Single Resolution Board (SRB) has had a somewhat difficult start but has been able to learn and adapt, and has gained stature following its first bank resolution decisions in 2017-18. It must continue to build up its capabilities, even as the European Union’s banking union and its policy regime for unviable banks continue to develop.
By:
Nicolas Véron
Date: April 18, 2019
Topic: European Macroeconomics & Governance

This material was originally published in a paper provided at the request of the Committee on Economic and Monetary Affairs of the European Parliament and commissioned by the Directorate-General for Internal Policies of the Union and supervised by its Economic Governance Support Unit (EGOV). The opinions

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EU financial services policy since 2007: crisis, responses and prospects

June 21, 2018

This paper presents a holistic overview and assessment of the European Union (EU)’s financial services policy since the start of its financial crisis in mid-2007. Its emphasis is on public policy initiatives and developments at the European level, including those specific to the euro area.

This paper has been first published in Global Policy Volume 9, Supplement 1, June 2018, and available here. It is republished by Bruegel with permission.

This paper presents a holistic description and assessment of the European Union’s financial services policy since the start of financial crisis in mid-2007. The decade-long sequence is divided into four themes, in broadly chronological order: the initial reaction to the 2007-08 financial shock; subsequent initiatives framed by political

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Mixed Reviews for the Single Resolution Board

January 16, 2018

The establishment in 2015 of the Single Resolution Board (SRB), a new agency of the European Union, is one of the most significant European banking reforms of recent years. The SRB was set up to quickly resolve banks that are failing or likely to fail, as part of a wider effort to break the vicious cycle between banks and sovereigns that nearly destroyed the euro area in 2011–12. A first assessment of this reform came up just before Christmas, when the European Court of Auditors (ECA) released a special report on the SRB. The report was discouraging on one level, citing many shortcomings of the new body. But there are also signs that the situation is improving and that the SRB is on its way towards fulfilling its assigned mission. For both reasons, this report, which is rich in previously

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Bad News and Good News for the Single Resolution Board

January 15, 2018

A first report on a key plank of the European Union’s banking union most significant post-crisis effort to reform the banking sector reflects on failures shortcomings thus far, but also indicates how suggests that recent improvements might ultimately lead the SRB to be successful in its founding critical missions.

The establishment in 2015 of the Single Resolution Board (SRB), a new agency of the European Union, counts as one of the most significant European banking reforms of recent years. The SRB was set up to quickly resolve banks that are failing or likely to fail, as part of a wider effort to break the vicious cycle between banks and sovereigns that nearly destroyed the euro area in 2011-12. A first assessment of this reform came up just before Christmas, when the European Court

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Europe Must Tackle Its Banks’ Sovereign Exposures

December 7, 2017

The euro area faces  a year of opportunity for completing the job of fixing the flaws exposed by the past decade of banking and sovereign debt crisis. The crisis is almost certainly over, memories are still fresh, and complacency has not yet fully set in. The political timetable for 2018 is propitious: France is energized with a new government, Germany will probably have one soon, and elections are expected in Italy in March. After that, no major political upheaval is expected until the European parliamentary election in the spring of 2019. The economic recovery is robust and broad-based. As European Commission president Jean-Claude Juncker put it, there is a favorable wind in Europe’s sails.
The driving engine of the euro area crisis, as acknowledged in communications from mid-2012

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Sovereign Concentration Charges are the Key to Completing Europe’s Banking Union

December 7, 2017

The past crisis revealed that most euro-area banks have disproportionate sovereign exposure in their home country. Charging banks for sovereign concentration is one solution to this issue, and would help advance the discussion on banking union.
By:
Nicolas Véron
Date: December 7, 2017
Topic: European Macroeconomics & Governance

2018 is set to be a year of opportunity for fixing the flaws that the past decade of crisis has revealed in the euro area. Whereas the crisis is almost certainly over, memories are still fresh and complacency has not yet fully taken hold. The political timetable is propitious: France is energised with a new government, Germany will probably have one soon, and Italy too following the general election

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Brexit: When the banks leave

December 1, 2017

More than a tenth of the City’s business is now bound to go, but how much worse could things get?

“Just left Frankfurt. Great meetings, great weather, really enjoyed it. Good, because I’ll be spending a lot more time there. #Brexit.” Thus tweeted Lloyd Blankfein, chief executive of Goldman Sachs, on October 19. It was the first time a major US financial services firm had signalled a shift of its European operations away from London in this way: not as a decision conditional on future developments, but as an established fact of business life. It was the first, but presumably not the last.
Just left Frankfurt. Great meetings, great weather, really enjoyed it. Good, because I’ll be spending a lot more time there. #Brexit.
It is too late to hope that the City of London, by many measures

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Sovereign Concentration Charges: A New Regime for Banks’ Sovereign Exposures

November 17, 2017

Europe’s banking union has been central to the resolution of the euro-area crisis. It has had an encouraging start but remains unfinished business. If it remains in its current halfway-house condition, it may eventually move backwards and fail. EU leaders should seize these opportunities
By:
Nicolas Véron
Date: November 17, 2017
Topic: European Macroeconomics & Governance

This material was originally published in a paper provided at the request of the Committee on Economic and Monetary Affairs of the European Parliament and commissioned by the Directorate-General for Internal Policies of the Union and supervised by its Economic Governance Support Unit (EGOV). The opinions expressed in this document are the sole

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AIG Is No Longer Too Big To Fail

October 4, 2017

Peterson Institute For International Economics
The Peterson Institute for International Economics is a private nonpartisan nonprofit institution for rigorous, intellectually open, and indepth study and discussion of international economic policy.

Headquarters
1750 Massachusetts Avenue, NWWashington, DC 20036

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Europe’s fourfold union: Updating the 2012 vision

September 19, 2017

In the past half-decade, Europe’s financial union has been significantly strengthened but remains incomplete and is challenged by Brexit. No consensus has been found on fiscal union, and the existing fiscal framework based on administrative control is problematic. Economic union has not made material progress. Political union might have advanced further than many observers realise. This four-part categorisation remains relevant and useful when assessing current and future challenges to European integration.

A version of this material was originally published as a written statement prepared for the Expert Meeting on Deepening the Economic & Monetary Union, Dutch Tweede Kamer, Finance Committee, The Hague, 13 September 2017.

The depiction of the euro area/European Union (EU) as

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Precautionary recapitalisation: time for a review?

July 13, 2017

While precautionary recapitalisation is a legitimate instrument for bank crisis management, the conditions set for it by BRRD (Bank Recovery and Resolution Directive) are restrictive and have so far been effective to prevent its inappropriate use on insolvent banks. Nevertheless, the European Stability Mechanism should be empowered to participate in future precautionary recapitalisations.

This paper was provided at the request of the European Parliament’s Economic and Monetary Affairs Committee, in advance of the public hearing with the Chair of the Single Resolution Board on 11 July 2017. The opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament. The original paper

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Precautionary recapitalisations: time for a review

July 12, 2017

Precautionary recapitalisation, a tool for public intervention in the banking sector defined in the Bank Recovery and Resolution Directive (BRRD), is a legitimate instrument for bank crisis management. The conditions set for it by BRRD are restrictive and have so far been effective to prevent its inappropriate use on insolvent banks. Outside of the scope of BRRD, the co-legislators should consider a reform of the EU audit framework to improve audit quality, and the European Stability Mechanism should be empowered to participate in future precautionary recapitalisations.

This paper was provided at the request of the European Parliament’s Economic and Monetary Affairs Committee, in advance of the public hearing with the Chair of the Single Resolution Board on 11 July 2017.

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The governance and ownership of significant euro-area banks

May 30, 2017

This Policy Contribution shows that listed banks with dispersed ownership are the exception rather than the rule among the euro area’s significant banks, especially beyond the very largest banking groups. The bulk of these significant banks are government-owned or cooperatives, or influenced by large shareholders, or prone to direct political influence.
By:
Nicolas Véron
Date: May 30, 2017
Topic: European Macroeconomics & Governance

The banking crisis in the euro area, which started in mid-2007 and has yet to be fully resolved, has sparked considerable debate and reform, most notably the initiation of banking union starting in mid-2012. But one issue that has been largely overlooked in the debate is the

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Europe Will Need Stronger Bank Regulation Post-Brexit

February 16, 2017

Unedited
Eitan Urkowitz: Hi, this is Eitan Urkowitz at the Peterson Institute for International Economics. I’m joined here with Nicolas Véron to discuss his recent paper on Brexit, the British exit from the European Union and the effect that will have on banking and financial regulation in the EU. Thank you for joining me, Nicolas.
Nicolas Véron: Thanks for having me.
Eitan Urkowitz: London has been the biggest financial hub or center in the EU. So how is Brexit going to be affecting London?
Nicolas Véron: So, of course, it depends a bit on the scenarios of Brexit. But the key point is that the UK will leave the European single market. And that means that to serve their clients in the EU 27—28 minus the UK—single market, financial firms will need to relocate a bunch of activities from

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Giving Asia its due in global financial regulation

January 5, 2017

Global cooperation on financial regulation has become increasingly important and valuable over the last decade, but its effectiveness cannot be taken for granted. Following November’s U.S. presidential election, Asia, and particularly China, needs to take a more central role to ensure the viability of the global system.
Compared with other modes of international economic cooperation, the global financial regulatory system is in a nascent stage of development. It is made up of a network of diverse organizations and groupings, many of them without legally binding authority, with the Financial Stability Board acting as a coordinating hub.
This system has grown in importance, particularly since the global financial crisis, and its impact has been overwhelmingly positive. The Basel Committee on Banking Supervision, for example, has helped to limit cross-border competitive distortions resulting from incompatible prudential rules and has been increasingly forceful in monitoring national compliance with its agreed standards. The widespread adoption of the International Financial Reporting Standards Foundation’s accounting principles has greatly enhanced the international comparability of listed companies’ profit statements, even if not yet on a universal basis.

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ECB finally addressing Italian bank woes

January 4, 2017

Italy’s banking problem has been left unaddressed for too long. Similar to Japan in the 1990s, it is best understood as a combination of structural and cyclical factors.

Most of Italy’s banks, many of which are small and local, have politicized governance features that blur commercial incentives. As a consequence, they were unable to rein in their lending during the downturn of the late 2000s.
Many of these loans turned sour in subsequent years and local connections prevented the banks from working them out, so they kept supporting borrowers in a pattern of “pretend and extend.”The system’s non-performing exposures now total hundreds of billions of euros. Many of these loans are collateralized, but repossession is not really an option given the country’s antiquated judicial system.
It gets worse — many banks sold their own shares and debt to their retail clients, often without proper disclosure of the risks and at inflated prices. Such self-dealing is prohibited in many jurisdictions, but wasn’t prevented in Italy and even received favourable tax treatment until 2011.
Bank equity and debt became even riskier once the EU introduced legislation on the resolution (or orderly liquidation) of failing banks, a shift that was signalled as early as 2009-10 and became official in mid-2012.

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Financial regulation: The G20’s missing Chinese dream

October 26, 2016

The current fairly peripheral role of China in the global financial regulatory system is increasingly problematic. The system needs a guiding vision in which China becomes much more central – a ‘Chinese dream.’ This paper outlines three clusters of initiatives to achieve a global financial regulatory system in which China holds a major position.

China’s recent emergence as a leading global economic and financial powerhouse has implications for all aspects of global governance. While a growing body of literature has analysed the consequences for international trade arrangements, the International Monetary Fund (IMF) and Multilateral Development Banks (MDBs), fewer studies have focused on the cluster of institutions that oversee financial regulatory standard-setting and policy development at the global level, referred to here as the global financial regulatory system.
In spite of significant crisis-induced changes in the last decade, this system has not sufficiently adapted to the new reality of China’s prominence, and has remained unsustainably centred on incumbent North Atlantic financial systems. This lagging pattern is in the interest neither of the incumbents, nor of China, nor of the world as a whole.

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Breaking the vicious circle

October 21, 2016

Nicolas Véron argues that EU banking union can only be complete if the vast amounts of domestic sovereign debt held by many banks are reduced

This op-ed was originally published in the October / November issue of Financial World.

The eurozone’s banking union has moved from vision to reality in a short period of time, with the European Central Bank now an established supervisory authority for the area’s large banks. This has already made a big difference to the many national banking champions that local supervisors had been treating with kid gloves. But the banking union’s ultimate policy goal, memorably defined by heads of state and government in June 2012 as the “imperative to break the vicious circle between banks and sovereigns,” has not yet been achieved.
One essential link in this vicious circle is the vast inventories of domestic sovereign debt held by many European banks. Reducing these holdings is now central to discussions on a more complete banking union.
The Dutch EU presidency in the first half of 2016 valiantly tried to make progress but could not overcome the stalemate of entrenched positions. Most countries want to keep the option of using national banking systems as buyers of last resort of their sovereign debt.

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The City will decline—and we will be the poorer for it

September 14, 2016

Just as the City owes much of its current awe-inspiring prosperity to European integration, the brutal realities of Brexit will make it shrink, not thrive. All this is bleak news, not just for the City but for the UK’s economy.

“Brexit frees us to build a truly global Britain,” enthused Boris Johnson in his Telegraph column immediately after being appointed Foreign Secretary. If anything presently embodies the vision of “Global Britain,” it is the City of London, that marvel of a world-leading, cosmopolitan, ferociously competitive and efficient financial centre that serves as a powerhouse for the entire UK economy. But just as the City owes much of its current awe-inspiring prosperity to European integration, the brutal realities of Brexit will make it shrink, not thrive.
All this is bleak news, not just for the City but for the national economy. London’s financial sector is a huge generator of tax receipts for the government: according to the City of London Corporation, in the year to March 2015, the City paid £66.5bn in tax, equivalent to almost two thirds of the national education budget. It also provided revenue and profits for innumerable non-financial businesses, not to mention easier access to capital for many UK companies. For all the anger directed at fat-cat financiers, their mass emigration will do the nation no good.

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Italy’s banking problem is serious but can be fixed

July 14, 2016

Following the UK vote to exit the European Union, the fragility of the Italian banking system has come into the spotlight. The Economist described it as a “potentially more dangerous financial menace” than Brexit. This characterization is massively overblown. The policy and political challenges associated with Italian banks are complex but far from intractable, and need not become a systemic risk for the euro area.

Italy’s weak banking sector is the largest remaining pocket of financial fragility from the long sequence of banking system problems that has blighted Europe since 2007. The seriousness of the situation has been apparent since at least the comprehensive assessment of 130 euro-area banks in 2014, which immediately preceded the transfer of supervisory authority from national agencies to the European Central Bank (ECB) as part of the broader reform known as banking union. In that assessment’s results, Italy had the lion’s share of problem banks in the euro area (9 out of 25), but corrective action was not immediately taken. The ECB in late 2014 accepted recapitalization plans from the weaker banks which in hindsight were inadequate, and when it eventually tightened its capital requirements a year later, the Bank of Italy appeared to resist.

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