Governing Banks in Europe

The financial crisis laid bare the complexity and systemic entanglement of modern commercial banks. Both the financial products (exotic derivatives and structured investments) as well as institutional interdependencies pose an increasing challenge to national and European regulators.  Overleveraging and undercapitalization in combination with excessive risk taking have been identified as the main causes of the crisis.  The regulatory responses to the crisis have been numerous. The Basel III accord (2011) introduced new (voluntary soft law) banking standards aimed at stabilizing and solidifying the global financial system. The EU implemented the Basel standards in the CRD IV package (2013). These legislative acts, together with the Deposit Guarantee Directive and Bank Recovery and Resolution Directive, form the foundation of the European Banking Union. Starting November 2014 the European Central Bank will fulfill the role of supervisor for the 120 most systemically relevant banks in the EU (and thus replace the national supervisors). The main objective of the ECB is ensuring that banks comply with the (new) EU banking rules.

With this multidisciplinary paper I propose to examine and discuss the following topics:

• Which socio-political and economic motives can be identified in the creation of the Basel III accord and the Banking Union?
• Are the issues of failing risk management, moral hazard, ‘too big to fail’ and financial fragility dealt with in an effective, proportionate and dissuasive manner?