Regulation and Supervision of the Single Financial Market

Course Description:

Prudential requirements (capital adequacy rules, large exposures' ratios, electronic money, deposit guarantee schemes, supervision of financial conglomerates, procedures for the reorganization and winding-up of credit institutions, and also means for the prevention of money laundering and terrorism financing) for entities active in the financial market are harmonized at EU level.

The developmental progress of the single financial market has relied on a variety of institutional approaches over the years. In 1973, restrictions on the establishment of and the provision of services by banks and other financial institutions were abolished. In 1977, the First Banking Directive harmonized key concepts of banking legislation, notably that of credit institutions. Following the landmark "Cassis de Dijon" case, the Second Banking Directive (1989) introduced the single passport concept for banks. In 1999, the development of the single financial market was boosted by the introduction of the Euro and the adoption of the Financial Services Action Plan (FSAP). In 2001, the Lamfalussy report on the regulation of securities markets introduced a four-level approach to legislation, regulation, supervision, and implementation that was extended to all financial sectors in 2003. Lastly, in May 2005, the Commission issued a Green Paper on Financial Services Policy, which aims at setting the priorities for the post-FSAP period.

Against this background, the aim of the course is to provide a structured overview of the legal and institutional frameworks for the regulation and supervision of the single financial market with a focus on banking supervision and, where relevant, with a reference to other financial sectors.

Contents:

The building-up of the single financial market has relied on a rich variety of institutional approaches over the years, which mirrors the development of the single market as a whole.  The first steps were taken in 1973 with the Council Directive 73/183/EEC, which abolished restrictions on freedom of establishment and freedom to provide services in respect of banks and other financial institutions. In 1977, the first banking directive introduced home-country control and harmonised key concepts of banking legislation, notably that of credit institution. Following the landmark "Cassis de Dijon" case, the principle of mutual recognition replaced the previous Community policy of absolute harmonization. In 1993, the second banking directive (1989) entered into effect and introduced the single passport concept: the authorisation by the home Member State and the application of its law and regulations is valid for all Member States. This implied that the integration of financial markets in Europe then proceeded on the basis of the joint application of the principles of home-country control, mutual recognition and minimum harmonisation of regulatory standards.

In 1999, the development of the single financial market was boosted by the introduction of the euro and the adoption of the Financial Services Action Plan (FSAP). While the euro represented a strong catalyst of further financial integration, the FSAP consisted of a wide-ranging programme aimed at setting the legislative framework for an effective single financial market. In 2001, the Lamfalussy report on the regulation of securities markets introduced a four-level approach to legislation, regulation, supervision and implementation of securities law which was extended to all financial sectors in 2003. The Committee of European Banking Supervisors was established as a result. Lastly, in May 2005, the Commission issued a Green Paper on Financial Services Policy, which aims at setting the priorities for the next five years of post-FSAP period.

Prudential requirements are presently extensively harmonised at EU level, including the minimum level of capital, capital adequacy rules, the concept of own funds, large exposures' ratios, requirements for annual and consolidated accounts, means for the prevention against money laundering and terrorism financing, features of deposit guarantee schemes, procedures for the reorganisation and winding-up of credit institutions, issuance of electronic money, supervision of financial conglomerates, and also the minimum set of supervisory powers of national authorities.
Against this background, the aim of the course is to provide a structured overview of the developing legal and institutional frameworks for the regulation and supervision of the EU's single financial market. The focus of the seminars will be on banking legislation and supervision, with a reference also to other financial sectors where relevant, including financial conglomerates.

Evaluation of students:

Each seminar has required minimum readings. In addition to these readings, students should also bring to the seminar the EU directives relevant for the subject that will be addressed in the seminar (distributed at the beginning of the course). The evaluation of students is based on the following components:

  • Active and informed participation in discussions at the seminars, on the basis of the minimum readings suggested for each seminar;
  • Presentation of a subject in each seminar;
  • Possible written assignments; Written essay (8-10 pages) at the end of the course on a specific topic to be chosen from a list provided by the lecturers. The topic of the essay must not be the same as the one of the student's presentation.

Credit Points:

5

Lecturer(s):

Pedro Gustavo Teixeira, Stefan Nießner

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