This article analyses the reform of the European institutional framework for bank supervision and crisis resolution in the aftermath of the Euro area bank and sovereign crises. The reform aimed at centralizing the decision-making structures for bank prudential supervision and resolution. Mutualization of bank risk is a cornerstone to ensure financial stability and to lend credibility to the Banking Union. To this purpose, the European Stability Mechanism (ESM) – preceded by the European Financial Stability Facility (EFSF) – was created as a mechanism of mutualisation of sovereign risks in the Euro area, which was followed soon after by a clear push toward the centralization of the decision-making structures of bank prudential supervision and crisis resolution. The Single Resolution Fund (SRF), and the single euro area deposit insurance scheme (EDIS) were created as two further Euro area private mutualisation mechanisms in the context of the Banking Union, to cover all banks in the euro area and in future participating countries. Neither the SRF nor the EDIS have the ESM as a fiscal backstop in the steady state as yet. In order to limit moral hazard, mutualization takes place hand-in-hand with burden-sharing with bank private investors in crisis resolution as per the Bank Recovery and Resolution Directive (BRRD). This article also compares the European and US regulatory frameworks based on the ultimate objectives of limiting moral hazard and preserving market discipline in bank resolution.
María J. Nieto
Dr María J. Nieto is Associate to the Director General Bank Regulation and Financial Stability at Bank of Spain. Her focus has been on prudential regulation and crisis management in the EU. Dr Nieto has been a contributor on these topics to the BIS, European Central Bank, European Commission and O.E.C.D. She has cooperated as Consultant with the International Monetary Fund as well as the Federal Reserve Bank of Atlanta.
She is author of several articles that have been published, among others, by the Journal of Banking and Finance, Journal of Financial Stability, European Financial Management and Journal of Banking Regulation. Dr Nieto is a member of the editorial boards of the Journal of Banking Regulation (Palgrave McMillan) and Journal of Financial Regulation and Compliance (Emerald).
Dr Nieto has developed her career at the European Central Bank, Council of Economic Advisors to the Spanish President, EBRD and International Monetary Fund. Dr. Nieto earned an MBA (finance) degree from the University of California, Los Angeles and a PhD cum laude from the Universidad Complutense de Madrid. Dr. Nieto is also a CPA and was recipient of the Fundación Ramón Areces Scholarship to pursue graduate studies at UCLA.