Publisher:
LUISS Guido Carli, Department of Economics and Finance, Arcelli Centre for Monetary and Financial Studies, Rome
Abstract:
European financial regulation and supervision have undergone tremendous changes over the last years. The current institutional arrangements adopted in Europe, at both EU/eurozone and national level, are the results of an evolutionary process that was mainly driven in its recent phases by the impact of the crisis broken out in 2008 and the 2010-2011 sovereign debt crisis. On the one hand, the financial crisis has triggered developments in financial regulation and supervision that have reshaped previous institutional architectures; on the other hand, it has also brought into question supervisors' performance. From this twofold perspective, our study first offers an updated overview of the emerging trends in financial regulation and supervision in the European Union, with a particular focus on the various institutional architectures, the role of central banks and the post-crisis reforms in individual countries and at the European level. Second, this research aims to shedding more light on the direct costs of supervision and its effectiveness. Overall, our empirical analysis shows that supervisors tend to become larger over time, in terms of both budget and staff, also in response to previous regulatory and supervisory failures. Political interference is avoided by the dominance of a market-based funding system. We observe a wide heterogeneity across different national systems and different supervisors in terms of direct costs data availability and reporting practices. We do believe that a comprehensive analysis of supervisors' performance cannot be based only on a cost-side evaluation, even if it is adjusted to account for the size of supervised industries and markets. Based on both quantitative and qualitative indicators, supervision effectiveness has necessarily to be taken into account, and in this regard there is ample room for further research.