European banking disunion. CEPS Commentary, 14 November 2013

In this CEPS Commentary Daniel Gros argues that the purpose of the euro was to create fully integrated financial markets; but, since the start of the financial crisis in 2008, markets have increasingly separated along national lines. So the future of the eurozone depends crucially on whether that trend continues or is reversed and Europe’s financial markets in the end become fully integrated. But either outcome would be preferable to something in between – neither fish nor fowl. Unfortunately, that is where the eurozone appears to be headed.

Transaction Banking: Respecting its role in the real economy. ECRI Policy Brief No. 6, 6 December 2013

This paper sketches the main features and issues related to recent market developments in global transaction banking (GTB), particularly in trade finance, cash management and correspondent banking. It describes the basic functioning of the GTB, its interaction with global financial markets and related implications of global regulatory developments such as Basel III. The interest in GTB has recently increased, since its low-risk profile, tendency to follow growth rates worldwide and relative independence from other financial instruments became an interesting diversification opportunity both for banks’ business models and for investors. Transaction banking has been a resilient business during the crisis, despite the reduction in world trade figures. In the post crisis period, GTB must cope with new challenges related to increased local and global regulation and the risk of inconsistency in regulatory approaches, which could negatively impact the global network and increased competition by new market entrants. Increased sophistication of corporate clients, as well as the pressure to develop and adopt technological innovations more quickly than other areas of banking continues to impact the business. The future of the industry closely depends on its ability to adjust to complex regulatory developments while at the same time being able to operate a global and efficient network.

Supervisory transparency in the European banking union. Bruegel Policy Contribution 2014/01, 3 January 2004

Bank supervisors should provide publicly accessible, timely and consistent data on the banks under their jurisdiction. Such transparency increases democratic accountability and leads to greater market efficiency. There is greater supervisory transparency in the United States compared to the member states of the European Union. The US supervisors publish data quarterly and update fairly detailed information on bank balance sheets within a week. By contrast, based on an attempt to locate similar data in every EU country, in only 11 member states is this data at least partially available from supervisors, and in no member state is the level of transparency as high as in the US. Current and planned European Union requirements on bank transparency are either insufficient or could be easily sidestepped by supervisors. A banking union in Europe needs to include requirements for greater supervisory transparency.

Falling short of expectations? Stress-testing the European banking system. CEPS Policy Brief No. 315, 15 January 2014

Before the ECB takes over responsibility for overseeing Europe’s largest banks, as foreseen in the establishment of a eurozone banking union, it plans to conduct an Asset Quality Review (AQR) throughout the coming year, which will identify the capital shortfalls of these banks. This study finds that a comprehensive and decisive AQR will most likely reveal a substantial lack of capital in many peripheral and core European banks. The authors provide estimates of the capital shortfalls of banks that will be stress-tested under the AQR using publicly available data and a series of shortfall measures. Their analysis identifies which banks will most likely need capital, where a public back stop is likely to be needed and, since many countries are already highly leveraged, where an EU-wide backstop might be necessary.