Banking Union and Reform of the Financial Supervisory System: an Effective Resolution for the Eurozone Crisis

Banking Union and Reform of the Financial Supervisory System: an Effective Resolution for the Eurozone Crisis

著者 佐藤 秀樹

journal or

publication title

金沢大学経済論集 = Kanazawa University economic review

volume 34

number 2

page range 299‑322

year 2014‑03‑31

URL http://hdl.handle.net/2297/36856

Ⅰ　Introduction

This paper aims to examine the Banking Union proposed as an effective resolution forrecentEurozonedebtcrisis,and to analyzethereform ofEurope’s financialsupervisory system.First,itinvestigatesstructuralproblemswithin the European Economicand Monetary Union.Particularly,itplacestheFranco-German relationship atthecentre,and triesto relatethehistoricalviewpointon monetary union to thecurrentsituation.Second,itanalysestheidealsand concreteproposals

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Supe r vi s or y Sys t e m:

an Ef f e c t i ve Re s ol ut i on f or t he Eur oz one Cr i s i s

Hi de ki Sa t o

Contents

Ⅰ　Introduction

Ⅱ　StructuralpointsoftheEuropean Economicand Monetary Union 　1.Background ofthisarticle:aviewpointon recenttrends 　2.Historicalperspectiveon theFranco-German relationship

　3.Theimportanceofcompletion ofthefreecapitalmovementand therecognition of 　　 inter-community disequilibrium in theEC:regionalimbalances

Ⅲ　ThestructureofaBanking Union and itsimpact

　1.PrerequisiteofaBanking Union:currentframework ofthefinancialsupervisory system 　2.Theapproach ofaBanking Union

Ⅳ　A solution forEurope’sfinancialand sovereign crisisthrough financialsupervision 　1.Searching foranew prospectiveidealofEMU

　2.Financialsupervision asthesolution ofEuro crisisfrom ageneralperspective

Ⅴ　Conclusion

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fortheBanking Union submitted by European Commission in termsofcomparative feasibility.Third,itconsiderssolutionsfortheEurozone’scurrentfinancialand sovereign debtcrisisfrom acomprehensiveview including financialsupervision.

The Eurozone’s 18 countries are required, under the‘non-standard measures’ implemented undertheECB’s(European CentralBank)singlemonetary policy,to more strictly restrain their budgetary planning. As a result, member countries’ budgetary polices are shifting drastically to‘re-strengthening of discipline’as a reflection of the sovereign debt crisis. At this time, the unification of financial regulation, also known a‘homoges nizing’, is also curtailing individual member states’ability to setup individualbudgetary policies.In recentyears,theESRB (European SystemicRisk Board)and the ESFS (European System ofFinancial Supervision) were launched as organizations that mandate both the micro-and macro-prudential policies using both the cross-section method and a uniform method. This approach is based on‘de Larosière Report’submitted in February 2009.However,thesemightchangein future.On theotherhand,theinternational monetary system is facing high uncertainty in two domains, namely financial conditionsand fiscalconditions.Tensionsexistbetween the‘market’and‘nation- states’.On theonehand,marketpressureshaveincreased dueto,high opennessof theEurozone’sgovernmentbond marketfollowing theglobalfinancialcrisis.On the other hand, circumstances also increase governments’need to reflec‘publt ic opinion’. In this context, this paper sheds light on three points as a possible resolution forthecurrentEurozonecrisis.Thesepointsareoffollowing hierarchy:

monetary policy,financialsupervision and fiscaland economicpoliciesthatinclude structural reform. The paper particularly focuses on financial supervision, the second point.In recentyears,an unprecedented motivation hasemerged to utilize financial supervision to tackle the Eurozone’s sovereign debt crisis. Through a processofdiscussion and revision,ithasmoved from an idealcloserto practice.I analyzethisprocessfrom theviewpointofBanking Union firstsubmitted in June 2012 by theEuropean Commission.

In addition,theArchivesdelaBanquedeFrancearealso used in developing the

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analyticalframework.My research also drawson aseriesofdiscussionsheld the honorary and current director general of the Banque de France, the practical specialistsofEuropean Commission in Brusselsand academicscholarsin UK and Luxembourg from 2013 to 2014.

Ⅱ　Structuralpointsofthe European Economic and Monetary Union 1.Background ofthisarticle:a viewpointon recenttrends

Weputforth theproposalofaBanking Unionⁱ⁾in theEuropean Union asakey solution forthecurrentEurozonecrisis(European sovereign debtcrisis).Onekey background point to note is the importance of financial supervision, which is becoming moreimportantand policiesmoreeffectivenotonly within nation-states but also for various markets. So far, though, the major reform of financial supervision and financial regulation have been dealt with simply as another dimension in thediscussion oftheproblemsfacing theeuro;in recentyears,these havebeen addressed attheEuropean Union-levelby focusing on unifying financial supervision,particularly overthebanking sector.On centralpillarofsuch reform is theproposalforaBanking Union.

Asof2013,Banking Union remained amereproposal,butithasrelatively high feasibility.In fact,on 12 September2013,itwasfinally passed by theEuropean Parliament(EP),asignificantstep in thecurrentsituation.Nowadays,theCreation oftheSingleSupervisory Mechanism (SSM)isconcrete,despiteconcernsfrom Germany and Finland aboutinappropriateconcentration and themandateforsingle banking supervision;although,thefactremainsthattheEP permitted theproposal. On theday itpassed,European Commission PresidentBarroso and Commissioner Barnier made statements stressing that attention should now urgently turn from creation oftheSSM to developing an SRM (SingleResolution Mechanism)ⁱⁱ⁾.

Certainly,itisevidentthatthisplan hasbeen developed fully and carefully by the multi-dimension view presented in theproposalpaperand subsequentrevision.So it has become a way of proceeding worthy of the European Union, showing its

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characteristicaccumulation of‘acquis-communautaire’.

In general,thesubstantialproblem oftheEU’sdebtcrisisis‘faiscal’matter; however, member countries have retained control of their sovereign financial supervisory systemsaswellasbudgetary policy.However,banking crisesshould be de-linked from sovereign crisesassoon aspossible.Onepossiblemechanism is fiscalunion.

Severalimportantfinancial,monetary and regulatory matterswereextensively discussed attheOctober2012,AnnualMeeting ofIMF-WBG held in Tokyo.Special

‘Program of Seminarsⁱⁱⁱ⁾’focused on, for example, 1) Sovereign Risk, Capital Marketsand FinancialStability:TheInterconnectionsand 2)Restoring PublicDebt: Sustainability in aHigh-Risk Environment.Mr.Carlo Cottarelly,Director,Fiscal AffairsDepartment,IMF,stressed theimportanceof‘fiscalunion’.Thisled to the realization thatthesolution to theEU’sfiscalproblem hasalready been devised―

simply by adifferentorganization working atadifferenteconomicscale.However, much of the discussions that have occurred at the IMF-WBG level need to be discussed and approved attheG20 level;in otherwords,thelevelofEU political decision making, rather than imposed from above. Indeed, public opinion is growing on thepointthatitisasubstantialand significantproblem forpolicies decided by independent (on ideals) bodies such as Central Bank and IMF can effectively overrulethepoliticallevel.Itisessentialforstabilizing international financialarchitectureso thatthepracticalmethodsand contentsaretransferred to thepoliticallevel(democraticunderstanding).

In addition,weshould recognisethatconflictand compromisewillalwaysoccur between the EU/Eurozone level and member states level, which shows the difference between‘ideal and vision’and‘implementation’(Figure 1). This point waspresented by Mr.DidierBruneel(Honorary DirectorGeneralofBanquede France)in discussion with authorin Parisin February and September2013.

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2.Historicalperspective on the Franco-German relationship

When analysing thestructureofEuropean monetary integration,theperspectives should beexamined ofboth Franceand Germany,thecorecountriestoward the monetary integration. The current Eurozone crisis is the first huge problem for European countriessince1999 and theachievementofmonetary integration.This crisisisnota‘currency crisis’,which had occurred in Europein 1992-93 asEMS crises, but a‘budgetary crisis’and‘sovereign crisis’. Today’s crisis is also a

‘banking crisis’,which isacentralreason forthe‘banking union proposal’.

In 1970s,following severalcurrency crises,the‘snake’system wasdestabilized becauseFrance,asacorecountry,suffered from speculatorsselling francsand the pressureofhigherinterestrates.Francewasforced to exitfrom thesnakein January 1974, returning in July 1975 only to re-exit in March 1976. In the economic situation ofstagflation,Franceinjected unstablemovementinto European monetary cooperation. However, following reforms spearheaded by Raymond Barre, who assumed thepostofFrench primeministerin themid 1970s,French policieswere similarto German policies^iv).Such an alignmentprocesscontinued,with exception of‘theexperimentofMitterrand’,underthe‘Mauroy Plan’in 1982 and the‘Delors

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Plan’in 1983.By 1986,thechangein policy direction wasalready bearing results^v). TheEMS (European Monetary System)wasactually founded in 1978 by two significantagreements,namely theBremen Accord and theBrusselsResolution.

The EMS consists of three pillars; ERM (Exchange Rate Mechanism), ECU (European Currency Unit)and EMCF (European Monetary Cooperation Fund,or FECOM,to usetheFrench abbreviation).In particular,FECOM’srolehad been inherited by EFSF (European Financial Stability Facility) after the euro’s introduction (in thesovereign debtcrisis),and hasbeen succeeded by theESM (European Stability Mechanism),which started in October2012.Thecharacterof

‘fund’,which playsan importantpartas‘sahort-term facility’or‘fund supply’,has been to keep auniversalvaluethrough socialhistory.

Asaprerequisiteoftheabovetwo agreements,in August1978,theEuropean Councilin Copenhagen madean agreementin principleoftheneed formonetary stability in Europe.On thatbasis,theagendain theaboveBremen Conferencein July 1978 focused on only monetary matters.TheEuropean Councilapproved the outlineofEMS togetherwith describing itsprincipleand advanced theintegration oftheabove-mentioned FECOM to EMF (European Monetary Fund).Furthermore, plansweremadeto implementin thisprocesswithin two yearsoftheinauguration oftheEMS (1979-81).However,concernswereraised thatthisposed too shortofa timeperiod to implementsuch an ambitiousprogram ofintegration.

However,asaresult,even though theBrusselsResolution in December1978 officially established theEMS,theEuropean Councilhad no choicebutto renounce proposalsrequiring meeting the1981 deadlineto setFECOM in theEMF.Thisalso reflects disagreements between member states over the EMF’s character and organization^vi).

When examining theparticularhistory ofFranceand Germany in respectto the abovepolicy failure,weshould keep thethreefollowing pointsin mind regarding French politicaldevelopmentin thehistory ofEuropean monetary integration:(1) France’s tactics in European monetary integration and its interaction with the Franco-Germany orFranco-American relationship,(2)within France’srelationship

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with Germany, the consequences of conflict and/or compromise with the Bundesbank during monetary integration and (3)within France’srelationship with America,itsappearanceofcompeting severaltimeswith theUS in itsproposalof internationalfinancialsystemicreform.Franceputforward proposalson thereturn to thegold standard in 1960s,apolicy presented by JacquesRueff,Valéry Giscard d’Estaing,on reform ofinternationalfinancialarchitecturein themiddleof1980s, and on theunification of the‘PalaisRoyalGroup’afterglobalfinancialcrisisin 2008.In particular,BanquedeFrancetook theinitiativeand published a‘Financial Stability Review’,which consisted ofatechnicalanalysisby thegovernorsofthe main centralbanks.TheseactivitiesindicateFrance’sinfluenceasastatepossessing thepowerto presentproposalsto internationalsociety.

On thecontrary,with regard to Germany,asasignificantcorecountry thathas effectivepowerovertheconvergenceofpoliciesin Eurozonememberstates,we could notethethreefollowing points.They arein linewith developmentson the road to monetary union that,(1)theBundesbank hasmoreoriginaltheoriesthan the German government, (2) a decision was made to discard the mark as a stable currency and (3)itclearly appeared tha‘monet tarism’,which attached ahigh value to M3,hasbeen chosen sincethelate1970s.In termsofthecurrentEurozonecrisis, somedifferencesbetween Germany and othermemberstatesareunavoidable,and indeed,arevital(however,somestatesaresimilarto theGerman stance).Thispoint particularly emergeswhen examining thedifficulty gaining agreementasto the feasibility ofthecurrentStability Bond (Eurozonecommon bond)proposal.On the otherhand,TSCG (Treaty on Stability,Coordination and Governance)wasagreed on 2 March 2012; however, Mr. François Hollande was sworn in as the new PresidentoftheFrench Republic,Europefaced acomplicated situation including therequirementofnew policieson growth and employment.

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3.The importance ofcompletion ofthe free capitalmovementand the 　recognition ofinter-community disequilibrium in the EC:regional 　imbalances

TheArchivesdelaBanquedeFrancerevealseveralinteresting historicalpoints regarding thisarticle’stheme.Onesuch exampleistheimportanceof‘thefree movementofcapital’.In thelate1980s,theauthorities’recognition ofthispointis reflected in the popularity of the‘la libération complète des mouvements de capitaux’,namely thecompleteliberalization ofcapitalmovement,in therecordsof thecommitteeofgovernorsofEEC centralbanks(Procès-verbaldela223eséance du Comité des Gouverneurs des Banque Centrales des États membres de la CommunautéÉconomiqueEuropéenne,tenueàBâle,lemardi8 mars1988^vii)).In addition,theGrouped’expertsprésidéparM.Raymond (1987)and Grouped’ expertsprésidéparM.Dalgaard (1988),two documentswritten by expertsgroupsin the committee of governors of EEC central banks, show that the problem on liberalization of capital movement was recognized at the highest levels. Furthermore,Mr.deLarosièresaid thatasthefreemovementofcapitalin the Community was a vital purpose and it constituted a fundamental part of developmentofthesinglemarket,then Franceregarded thisstep asirreversible.

In addition,theFrench archivesalso shed lighton theissueof‘regionalbalance’, or‘l,es déséquilibrés intracommunautaires de balances des paiements’, revealing thatconcern overthisissuein thedocumentsoftheresearch departmentofBanque de France on 23 November 1989^viii). The surplus countries at the time were Germany, the Netherlands, Belgium/Luxembourg and Ireland, while deficit countries were France, Denmark, Italy, Spain, Portugal, Greece and United Kingdom.Thissituation issimilarto thecurrentstatus.Thematterofimbalancesin theCommunity’scurrentaccountdependson competition and industrialstructure, rendering itimpossibleto resolvein theshort-term.On thecontrary,an effective solution needsto utilizethedifferencesand diversity in theregion.

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Ⅲ　The structure ofa Banking Union and itsimpact

1.Prerequisite ofa Banking Union:currentframework ofthe financial 　 supervisory system

Thischapterexaminesthesystem offinancialsupervision,which iscurrently conducted by severalbodiesacrosstheEuropean Union.First,theSEA (Single European Act)and Second Banking Directive,established and implemented from thelatterpartofthe1980sto theearly 1990s,served asimportantfoundationsto the EU’sregulatory and supervisory framework.Second,theFSAP (FinancialServices Action Plan) as well as the four levels of the Lamfalussy process and its implicationsplayed vitalrolesin constructing theEU’sframework ofregulation and supervision.

Following thesefirststeps,theHigh LevelGroup,chaired by Mr.deLarosière, published theframework foranew cross-sectorsupervisory system designed to safeguard Europe’sfinancialstability^ix).Itpositively impactstheEU’sfinancial stability. The report begins with very strict recognition for this global financial crisis. This framework envisioned a central role for the chairperson of ESRC (European SystemicRisk Council)asthegovernoroftheECB (European Central Bank);namely,theECB would play acorerole.Italso called fortheESRC to issue an early warning ofrisk to ESFS (European System ofFinancialSupervision).This reflectsan‘ex-anteprevention’approach to dealing with afinancialcrisisand shows theimportanceofpre-emptivemeasures.

Next,weexaminethesituation ofthesystem in December2013.Currently,the ESRB (European SystemicRisk Board)implementsmacro-prudentialsupervision.

This institution holds responsibility of summarizing the overall situation, and it monitorsand makesassessmentson therisksto financialstability.Italso keepsan eyeoutforearly indicationsofsystemicrisksthatcould contributeto accumulation.

Aftertheglobalfinancialcrisis,thismacro-prudentialpolicy seemsto beeven more significantin themain advanced centralbanks.TheESRB’screation may actin concertwith thatoftheFSB (FinancialStability Board)attheG20 level.This

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reflects the increasing trend of multinational level initiatives outside the EU. It reflectsthedevelopmenttha‘stubstantive’politicalcooperation isnotbilateralbut multilateral; in other words, the power constraints operating on member states, hardly or softly, were implemented in response to real economic pressures and brought a sense of tension. In addition, it reflects the facts that the world has increasingly commoditized the need for financial regulation, and the financial regulation gradually becomeslevelwith diversity.

In contrast, the ESFS plays the role of micro-prudential supervision. This is system holdsthedomain ofsupervision foreach individualcreditinstitution.The ESFS consists of a network binding the supervisory authorities of EU member countries,and ismanaged through cooperation with ESAs(European Supervisory Authorities),which consistoftheEBA (European Banking Authority)in London, theEIOPA (European Insuranceand OccupationalPensionsAuthority)in Frankfurt and theESMA (European Securitiesand MarketsAuthority)in Paris.Therefore, theseinstitutionsarelargely affected by thedeLarosièreReport.

2.The approach ofa Banking Union

Next,wewillreview thefundamentalsofabanking union,orin French,‘une union bancaire’.A banking union hasasimportantaroleto play astheEMU (Economic and Monetary Union) and fiscal cooperation. Its main tenets are construction of pan-European supervision, a single-resolution measure and harmonisation ofnationaldepositguaranteeschemes.TheBanking Union project therefore consists of three pillars, namely, SSM, SRM and a Common DGS (Deposit Guarantee Scheme)(Figure 2). Spain’s banking crisis has placed particularimpetusbehind theBanking Union projectasoneofSpain’smajorbanks, Bankia,needed to berescued from itsnon-performing loan problem.In addition, Spain’ssovereign risk ofstatetriggered theEurozone’soverallsovereign debtcrisis. Itmustbepointed outthatasmeasureofsovereign debtproblem,European sovereign debtmarketshave‘high openness’,which isahigh contrastto theJGB (JapaneseGovernmentBond)market.In addition,becausefiscalpoliciesbasically

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depend on theautonomy ofmemberstates,marketparticipantscan continueto exploitagap between expectation and reality.By themechanism,theelementof risk contributesto extraordinary riseoftheyield from nationalbonds.In contrast, US nationalbondsarelargely held by Asian authoritiessuch asChinaand Japan for theholding asforeign reserves.So thecharactersofthesemarketssubstantially differ. The openness of the European bond markets generates a situation of continued acceptanceofmarketpressuresatalltimes.

TheproposalforaBanking Union wasfirstpresented in fullin June2012.The documentproposed by theEuropean Commission isavitalreference;namely,the European Commission (2012)(Brussels,XXX COM (2012)280/3),Proposalfora DirectiveoftheEuropean Parliamentand oftheCouncilestablishing a framework fortherecoveryand resolution ofcreditinstitutionsand investmentfirms^x).

Itsmain pointsarethefollowing.Thedocumentsetsup theeffectiverecovery of banking sectorand aframework forresolution.Originally,bank and investment firms operating as credit institutions supplied vital and essential services for consumers,industriesand overalleconomies,such asholding deposits,lending and operating apaymentsystem.Becausetheseoperationsarebased on credit,once

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customers or counterparties lose confidence in the competence of payment obligations,thecreditinstitution’sfinancialoperationsmustbecomeimmediately invisible.Ifthebank fails,thedocumentdepictshow thebank willgradually end its operationsalong with ordinary bankruptcy procedure.However,on theotherhand, thedocumentsoundsawarning when asinglebank’sproblem could bepossibly spread to the overall system due to increasing interdependency among credit institutions.

Thedocumentfurtherstatesthatcertain casesfrom can beexemptfrom ordinary bankruptcy proceduresowing to thesystemicrisk posed by theindividualcredit institutionsand importantfunctionssuch asfinancialoperations.Thereportalso indentifiesthelack ofeffectivetoolsforcreditinstitutionson thevergeofcrisis, which led to thefrequentdemandsforinjectionsofpublicfundsfortherecovery of credit. Currently, public funds could be injected into relatively small credit institutions to prevent heavy damage in real economy or forestall the‘domino phenomenon’.Forthisreason,atoolisrequired to enablebanking resolution in an orderly mannerand avoid contagion from spreading to otherinstitutions.

Thepoliticalframework oftheBanking Union givesthesupervisory authorities responsibility foroverseeing theoverallhealth ofthesystem through thefollowing common effectivetoolsan competences:(1)to‘pre-emptively’dealwith banking crises, (2) to implement safeguards for financial stability and (3) to minimize taxpayers’exposureto losses.Particularly,thedocumentfrequently highlightsthe third pointin relation to fiscalstringency.

Finally,Imention thefourconcretetoolsforbanking resolution.First,thesaleof business;thismeansthesaleoftargeted creditinstitutions,orthesaleofallorpart ofitsoperations(however,itdoesn’tneed approvalby stakeholders),and asmuch aspossible,theauthority would sellthetargeted creditinstitution orpartofits operations on the market. Second, the idea of abridge institution, where the authority would require targeted credit institution to transmit all or part of its operations to an official management institution. The bridge institution needs a licensealong with aCRD (CapitalRequirementDirective).Ifthemarketcondition

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isputinto place,theauthority would selltheoperation to theprivatesector.Third, theassetseparation;aproblematicassetwould betransmitted to an assetvehicle and bemanaged within thevehicle.Theassetwould betransmitted to themarket and,in thelong term,grow in economicvalue.To minimizecompetitivedistortion and therisk ofmoralhazard,thetoolshould beutilized in tandem with othertools. Fourth,thebail-in,which meansthatthepriceofaclaim held by an unsecured creditorofcreditinstitution in failurewould bedevaluated and therequirementof debtsatisfaction would beconverted to stock.Herein,theauthority could produce considerableflexibility in theresolution oflarge,complex financialinstitutions.

In addition,thedocumentpresented by theEuropean Commission in September 2012 providesregulationsforstrengthening theECB’sregulatory powerin detail, and importantly,itincludestheimplication forthefuturein full.TheEuropean Commission’s (2012)Proposal for a COUNCIL REGULATION ^xi) draws up a detailed mandatefortheECB and thelegalfoundation,such asin Article127(6) and in Article132 ofTFEU (Treaty on theFunctioning oftheEuropean Union).

Ⅳ　A solution forEurope’sfinancialand sovereign crisisthrough 　　　financialsupervision

1.Searching fora new prospective idealofEMU

In this chapter, we will examine the issue of financial regulation from the viewpointofbig picturein dealing with theEurozonecrisis(Figure3).A summit meeting washeld in Romeon 22 June2012,attended by Germany,France,Italy and Spain and chaired by Mr.Monti,formerprimeministerofRepublicofItaly.This meeting’sagendadiscussed funding‘growth’by theamountof130 million euros. Thisdecision seemed to reflectrecognition thatsimply restoring fiscalhealth was notsufficient.France’schangein politicaladministration in thelastmonth had impacted thesituation,so they examined how to reconcilegrowth policieswith budgetary restrictions. They also considered the positive utilization of the EIB (European InvestmentBank),by which EU memberstateswould fund an increase

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itscapital,and itwould loan to infrastructureand clean energy projects.In addition, utilization ofSF (StrueturalFunds)wasdiscussed (approximately 55 billion euros forjob creation),and theagendaalso included adiscussion on therevaluation and improved utilization of procurement and lending by policy finance institutions. Thesetopicsshow new directionsofthoughton SF particularly thatforcorrecting Eurozoneimbalances,SF should beutilized moreflexibly.

Nextwewilldiscusswith theEU’sapproach towards‘aGenuineEconomicand Monetary Union’, a document submitted by Helman Van Rompuy, chairman of European Council, on 26 June 2012^xii). It examined how such a union could contribute to the EMU’s future with a focus on growth, jobs and stability. It presented the architecture to build a stronger and more robust EMU through integrating thefinancialsector,fiscalmattersand economicpolicy.However,it cautions that these factors should be supported by strengthened‘democratic legitimacy’and‘accountability’.BanquedeFrance’sGovernor,Mr.Christian Noyer, cautionsthatin termsof‘accountability’,thedomain ofexchangeratepolicy and the power in the relationship between the ECB and ECOFIN (Economic and Financial Affairs) Council pose vital and sensitive issues^xiii). Recently, the

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importanceofaccountability hasnaturally arisen even moreon thesideofpublicity given to monetary policy by advanced centralbanks.Thisreflectstheorganization’s legalposition asacentralbank and itsresponsibility foraccountability to itsown parliament.Asmentioned above,thedocumentsshow thatalongerterm perspective isnecessary forconsidering and monitoring futureissuesto enableabreakthrough in thecurrentsituation.

TheEurozonedoespossessahigh degreeofdiversity;theEuropean Council (2012)said with certainty thatin thiscontext,policy planning atthe‘nation state level’wasthemosteffectivemethod in many economicdecisions^xiv).However,it also made a categorical decision that each policy could not be independently decided atthenation statelevelwhen thehealth oftheoverallregion wascontingent upon acoordinated policy response.Thisservesasevidenceofaphenomenon of maturation in the presence of globalization, with the consolidation of the EU’s internal‘singlemarket’asproof.

Asawhole,thedocumentsstresstheessentialneed to keep‘competitiveness’,

‘coordination’and‘convergence’atappropriatelevelsto ensuresustainableecono- mic development without excessive imbalances. In this way, policy could be appropriately mixed between the single monetary policy and the above three conceptsto pursuepricestability asbefore.

On 28-29 June 2012, the European Council held, in the opinion of French Ambassadorto Japan Mr.Chistian Masset,asignificantmeeting^xv).In hislecture atKeio University,in Tokyo,in July 2012,Mr.Massetreiterated theimportance of ideals such a‘ssolidalité’and‘convergence’. In August 2010, Chairman Van Lompuy also discussed thethemeof‘solodality’in hislectureatKobeUniversity. Thesetwo wordsremain key to theEU’svision;even asitfacesadebtcrisis,the EU can sustain astrong willto pursueeconomicgrowth in thetruesense.

2.Financialsupervision asthe solution ofEuro crisisfrom a general 　 perspective

In thissection,wereconfigurethemain agendasofboth theEurozoneand the

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European Union. In terms of the political pillars, the following five issues are assessed in orderofrelativeimportance:(1)monetary policy by theECB,including conventional policy and non-standard measures such as LTROs (Longer-Term Refinancing Operations)and OMTs(OutrightMonetary Transactions),(2)exchange ratepolicy by theECB and ECOFIN and its‘neutral’stance,(3)aBanking Union, consisting of SSM, SRM and Common DGS, (4) structural reform including strengthening competitiveness, reform of industrial structure and dealing with employment and (5) strengthening of fiscal policy coordination at the EU or Eurozonelevel,such asimplementation ofTSCG.

Thefirsttopicisexistenceofsufficientfacility.Ifwereferto theEFSF and ESM from theviewpointoffacility,theEFSF isabody thatcan issuebondsand accept theeffectofbeing rated by themarket,namely,CRAs(CreditRating Agencies). Currently,itseemsto enjoy astablereputation;however,ithasbeen forced to face market pressures on a continuous basis. The EFSF transmitted to the ESM in October2012.However,thetransmission seemed to limitlending capability atthe reallevelasasolebody.Thisleadsto theIMF serving astheglobalLLR (Lenderof Last Resort). This point was clearly apparent in that when dealing with the Eurozonecrisis,theEuropean Commission,ECB and IMF alwaysmadeatroika. Furthermore,dueto thegrowing powerofinternationalassertivenessand funding supply of emerging economies, the IMF can continue to lend despite global financialcrisis.However,becauseofthestrong conditionality thattheIMF imposes, itsfacility isnotreally comparablein substanceto thatoftheESM.Ourhistorical experience tells us that the EMF, as mentioned above, and the AMF (Asian Monetary Fund),wereboth good ideasthatdid nottranslateinto reality.

Thediscussion willnow moveon to theTreaty on Stability,Coordination and Governancein theEconomicand Monetary Union (TSCG),signed on 2 March 2012^xvi).In theEU,25 countrieshavesigned with thecurrentexceptionsofthe United Kingdom and Czech Republic.In particular,Article3 in thePart3‘FISCAL COMPACT’needsto beexamined.TheTSCG mentionsseveralpillarsofsuch a compact: (1) maintaining fiscal discipline and re-strengthening coordination on

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economic policy, which means establishment of a‘balanced budget rule’, (2) lowering the limit of‘structural deficit’to 0.5%, (3) stipulating that signatory countieshaveamission to accomplish swif‘ctonvergence’asamedium-term target and (4) specifying that the TSCG’s purpose will be incorporated into the fundamentallaw oftheEU,namely,theLisbon Treaty.Thelastpillarisessential given theintention ofharmonisation stated by thefundamentaltreaty oftheEU.

Thethird topicistheeffectofBIS capitalrequirementsand theimpactofBasel

Ⅲ asan event,which,from amacro viewpoint,isinextricably bound with financial regulation;namely,abank’scapitalproblem isdefined by capitalregulationsfrom Basel(orBCBS:BaselCommitteeofBanking Supervision).BaselⅢ,published by BCBS in December2010,reached to accordance^xvii).Itstipulatesthattheminimum required Common Equity Tier1 such ascommon stock etc.is4.5% parrisk asset. However,thismeasurecomesinto effectafter2015 and willbeimplemented as transition measuressuch as3.5% in 2013 and 4.0% in 2014.Theminimum required Tier1 Capitalisdetermined to be6.0%.Asmentioned above,itbecomeseffective after2015 and isimplemented in stagesof4.5% in 2013 and 5.5% in 2014.In sum, corecapitalstrength isessentialand abufferforemergency situation should be prepared.Theserequirementsharmonisethestresstest,orthedegreeoftolerance forstress,asimplemented in theUS and theEU.Itmustalso apply to private banking activities. Therefore, it has strong potential to restrictive the EU’s abovementioned growth strategy.Itisvitalforthebanking sectorto makean effort to assess the impact on lending behaviour of the BaselⅢ restrictions on the management of risk in credit activities. Authorities might need to intervene to ensurebanksundertaketheappropriatedegreeoflending activities.

Ⅴ　Conclusion

To summarisethisarticle,wepresentthefollowing fourpoints:First,notonly

‘preemptive’views but also‘ex-post’views are needed in micro-and macro- prudentialpoliciesto dealwith emergentcrises.In therecentglobalfinancialcrisis,

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theconceptof‘policy in time’proved farmorevaluablethan thespecific‘contents ofpolicy’.In thisregard,theUS politicalresponsetowardsthefinancialcrisissince 2008 has mostly been successful; thus, demonstrating tha‘itmmediacy’is more effectivein arealsituation,contradicting thecriticsofrapid sequenceorpremature responses. Similar to the US case, in the EU, the‘preventive’approach was considered and chosen by authorities. Words such a‘prs eemptive’or‘ex-ante’ appearbeforethefactand preemptivemeasuresgain recognition.However,notjust an in-timeapproach,butalso ex-postmeasurescould bestrongerand implementing ex-post measures in a‘preemptive’manner has appeared successfully in the Eurozone’spoliticaldecisions.

Second, the Banking Union is a breakthrough project. For banks that have outstanding‘publicity’(orrequirealicense)in any othercreditinstitution,itwould unionisetheresolution toolsand reducetheburden on thetaxpayer.On thispoint, weneed to show thetypeofresolution orrescuein ContinentalEuropearesimilar to the‘ring fence’measuresused in theUK^xviii).ThisEuropean typeofresolution is designed to resolveproblemswith creditinstitution in an orderly mannerwith clear systematization. Furthermore, it is a distinction to think primarily of tota‘clost reduction’.TheUS politicalresponseto therecentcrisisindicatestheopportunity forthegeneralmobilization ofallpossiblepolicies.So,theAmerican response formsacontrastto Europe’s.In thefuture,theEuropean responsecould serveasa globalstandard in resolution and financialregulation.

Third, in the future, we could think that central banks would play a more significantrolenotonly forpriceand financialstability,butalso play acentralrole asasupervisory institution.Originally,administrativeordercan beissued by the government,however,from now on,wethink an orderby thecentralbank could be similarto an administrativeonebecausetheindependenceofcentralbank isassured de jure. It is possible that central banks are given such influence in advanced economiesdueto thecentralroleofECB asakey pan-Eurozonesupervisorof128 measurebanksdirectly in theSSM.

As observed, the Banking Union proposal has relatively high feasibility in

－３１７－

comparison to fiscal union. To complement the ECB’s non-standard monetary policy and memberstates’fiscalcoordination and structuralpolicies,theBanking Union isessentialto makeagenuineEMU,aspartofnotjustthecommon concrete vision butalso itsimplementation.

Thisresearch issupported by fundsfrom Hokuriku Bank Ltd.foryoung researchers.This articleisbased on and revised along with developmentofmy articlein Japaneseon‘Theeuro crisis and the financial regulation: A viewpoint of a banking union’,Kanazawa University EconomicReview,vol.33,No.2 March 2013.

To reviseit,Itruly appreciateforthefundamentaladvicefrom ProfessorTakao Kamikawa (YokohamaNationalUniversity),theimportantand preciouscommentsmadeatJSME in Tokyo in May 2013 from ProfessorKenjiIwata(Kyushu University),and atJSIE in Fukuokain June 2013 from ProtessorKaoru Hoshino (Ritsumeikan University).Iam also thankfulto beadvised to visittheUniversity ofBirmingham in UK in March 2013 from ProfessorTakumiHoribayashi (KanazawaUniversity).

Notes

　 i)In English and in French, it is called‘a banking union’and‘une union bancaire’, respectively.

　 ii)European Commission (2013),Statement by President Barroso and Commissioner Barnier following the European Parliament’s vote on the creation of the Single SupervisoryMechanism fortheeurozone,Brussels,12 September.

　 iii)International Monetary Fund-The World Bank Group (2012),2012 Annual Meetings: Program ofSeminars,Tokyo,Japan,October10-13.Thisbrochureliststhepurposesof each program,thepointsoftheagendasand theintroduction ofpanellists.

　 iv)Professor Yasuo Gonjo recently published a comprehensive vital book on the use of various and precious Archives. Gonjo (2013),The historical origin of monetary integration:Thegreattransformation ofthecapitalism world and choicesbyEurope, Nihonkeizaihyoronsya,Tokyo (in Japanese).

　 v)In detail,Sato (2003)referred to thepoint.

　 vi)Mehnert-Meland,R.(1995),CentralBankto theEuropean Union:European Monetary Institute,European System ofCentralBanks,European CentralBank,Structures,Tasks and Functions,KluwerLaw International,pp.5-6.

vii)ArchivesdelaBanquedeFrance,1489200201/6.Procès-verbaldela223^eséancedu ComitédesGouverneursdesBanquesCentralesdesÉtatsmembresdelaCommunauté

－３１８－

ÉconomiqueEuropéenne,tenueàBâle,lemardi8 mars1988.

viii)ArchivesdelaBanquedeFrance,1373201001/4.LesDéséquilibrésIntracommunautaires deBalancesdesPaiements,23 novembre1989.

ix)Thehigh-levelgroup on financialsupervision in theEU (Chaired by JacquesdeLarosiére (2009)),Report,25 February.

　 x)European Commission (2012) (Brussels, XXX COM(2012) 280/3),Proposal for a DirectiveoftheEuropean Parliamentand oftheCouncilestablishing a frameworkforthe recoveryand resolution ofcreditinstitutionsand investmentfirmsand amending Council Directives77/91/EEC and 82/891/EC,Directives2001/24/EC,2002/47/EC,2004/25/EC, 2005/56/EC,2007/36/EC and 2011/35/EC and Regulation (EU)No 1093/2010.

　 xi)European Commission (2012) (Brussels, 12.9.2012 COM (2012) 511 final 2012/0242 (CNS),Proposal for a COUNCIL REGULATION: conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of creditinstitutions.

xii)European Council: The President (2012),Towards a genuine economic and monetary union,ReportbyPresidentoftheEuropean CouncilHerman Van Rompuy,EUCO 120/12, June26.

xiii)Sato,H.(2011),‘Germany,Franceand Eurozone’,in Kamikawa,T.(ed.),TheInternational Monetary Regime and Global Financial Crisis: the analysis by regional approach, NihonkeizaiHyoronsya,Tokyo,Chapter11,pp.330-331 (in Japanese).

xiv)European Council:ThePresident(2012),op.cit.

xv)Masset,C.(2012),La crisedel’euro etlerôledela France,Conférencedel’Ambassadeur àl’UniversitéKeio,10 juillet.

xvi)European Council (2012),Treaty on Stability, Coordination and Governance in the Economicand MonetaryUnion (TSCG).

xvii)Bank forInternationalSettlements(2010),‘ResultsoftheDecember2010 meeting ofthe BaselCommitteeon Banking Supervision’,PressReleases,1 December.

xviii)In theUK,classification a‘rsing-fence’and‘non ring-fence’forrescuemeasuresimpacts theinternationalfinancialworld.In particular,thefollowing threepointsarelisted:(1) ring-fencing vitalbanking services,(2)depositorpreferenceand (3)theframework for implementing Primary LossAbsorbency Capacity (PLAC)requirements.Theabovefirst pointrelatesto thisarticle.In detail,UK HM Treasury (2012),Sound banking:delivering reform,October.Thisdocumentisbackground on thereportby IndependentCommission on Banking.IndependentCommission on Banking (2011),FinalReport,in particular, Chapter3:Retailring-fence.

－３１９－

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Acknowledgementsforinterview and discussions

Igreatly appreciatethepreciousand informativediscussionswith thefollowing experts.

Mr.DidierBruneel(Honorary DirectorGeneraland Adviserto theGovernor,BanquedeFrance) Mr.DenisBeau (DirectorGeneralOperations,BanquedeFrance)

Mr.Iain Begg (Professor,TheLondon SchoolofEconomicsand PoliticalScience)

Ms.Kathrin Blanck-Putz(Team Leader,DG fortheInternalMarketand Services,European Commission)

Mr. Jan Ceyssens (Team Leader, Legal Officer, DG for the Internal Market and Services, European Commission)

Mr.Richard Connolly (Lecturer,University ofBirmingham)

Mr.Bertrand Dumont(CabinetofCommissionerMichelBarnier,DG fortheInternalMarketand Services,European Commission)

Mr.CharlesA.E.Goodhart(Professor,TheLondon SchoolofEconomicsand PoliticalScience) Mr.David Howarth (Professor,Universitédu Luxembourg)

Mr.Geoffrey T.Wood (Professor,Warwick BusinessSchool)