Ekholm: Dealing With Cross-Border Banking Without Rolling Back Financial Integration
Deputy Governor Karolina Ekholm held a speech on Friday at the central bank of Greece in Athens in which she discussed possible ways of dealing with problems arising from cross-border banking without taking a protectionist stand.
The global financial crisis and the bailout and failure of several cross-border institutions have raised serious concerns regarding the regulation and supervision of such institutions and crisis management regarding institutions in distress. To deal with these concerns, some countries have proposed various ways of limiting banks’ abilities to expand abroad. Deputy Governor Ekholm argued that this would be the wrong approach. “It would have to involve financial disintegration with strongly negative consequences for future growth prospects,” she said.
Ms. Ekholm stressed that the key problem with cross-border banking is that the regulatory framework for ensuring financial stability has not been adapted to market developments as quickly and as thoroughly as needed. While financial markets have developed beyond national borders, the current legal and institutional frameworks – including regulation, supervision, deposit insurance and crisis resolution – remain national.
To get around this geographical mismatch, Ms. Ekholm said that we should work towards improving the current frameworks so that they better match the international landscape of financial markets. This of course would require better and more extensive cooperation across national borders. Because cross-border banking has a strong geographical component, she argued that enhancing cooperation on a regional basis can be an effective way of proceeding. “Increased cooperation may not completely prevent problems related to cross-border banking from arising, but I think it is the only reasonable middle way between maintaining financial integration and avoiding the unduly high costs associated with managing cross-border banks in a crisis.”
Read the whole speech in the PDF file below.
