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

Summary:
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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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 developments at the EU and G20 level; the banking union from mid-2012; and more recent events centred on the United Kingdom vote to exit the EU (Brexit). The analysis identifies banking union as the watershed moment, and correspondingly assesses the EU policy response as mostly inadequate in the first half and mostly effective in the second half of the period covered. Recommendations for future reforms are made in the conclusion.

Key recommendations:
Complete the task of breaking the bank-sovereign vicious circle in the euro area with a reform package that includes a European Deposit Insurance Scheme that equally protects all insured deposits, the introduction of sovereign concentration charges to reduce the home bias in banks’ sovereign exposures, and the phasing out of national authorities’ ability to ring-fence banks’ capital and liquidity.

Move towards a simpler, ‘twin-peaks’ architecture for financial supervision in the European Union with a strengthening of the governance and funding of the European Securities and Markets Authority and an expansion of its scope of direct responsibility over financial business conduct.

A long-haul effort of further harmonisation in both banking and non-bank activities (banking union and capital markets union) to move closer to the vision of a single market for financial services, including areas such as accounting, auditing, insolvency legislation and investment taxation.

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.

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