FSR Forum jaargang 12, editie 4 by Eefke van der Meer

12e Jaargang June 2010 editie #4

Financieel toezicht Burden sharing for cross-border banks

K(r)anttekening

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fsrforum • jaargang 12 • editie #4

Financieel toezicht

Voorwoord

Waarde lezer, Mede dankzij de financiële crisis heeft een groot aantal landen in de Eurozone te maken met buitensporige tekorten, denk bijvoorbeeld aan Griekenland. Naast de impact van de crisis op het land heeft Griekenland jarenlang gelogen over de hoogte van haar tekorten. Door deze factoren liep het tekort op tot ver boven de toegestane 3 procent. Griekenland kwam in zoveel moeilijkheden dat zij heeft moeten aankloppen bij de Europese Unie (EU) en het International Monetary Fund (IMF) voor miljardensteun om haar financiën de komende jaren op orde te kunnen krijgen. Om toekomstige situaties, zoals die in Griekenland, te voorkomen willen de lidstaten onder andere strengere maatregelen tegen landen die het stabiliteits- en groeipact niet naleven. Er is nog enige onenigheid over hoe dit moet worden gerealiseerd. Daarnaast moeten de landen die hun schulden niet meer zelf kunnen afbetalen hulp krijgen om de eurozone stabiel te houden. Hiertoe is een noodfonds ingesteld. Mogelijk komt er een nieuwe Europese instelling die zonodig het geld met garanties van de eurolanden kan lenen. De huidige stand van zaken: de Europese Commissie accepteert het begrotingsplan van Griekenland. De regering van het land zegt daarin onder meer haar begrotingstekort van 13 procent naar 3 procent terug te hebben gebracht in 2012. Momenteel is het begrotingstekort van Griekenland namelijk vier keer hoger dan wettelijk toegestaan in de eurozone. Griekenland staat wel onder strikt toezicht van de Europese Commissie tot het zijn zaken op orde heeft. Door het grote tekort stegen de kosten voor het lenen van geld de laatste maanden enorm. Nu wordt gevreesd dat Griekenland ook andere landen kan beïnvloeden met zijn financiële problemen. In deze editie van het FSR Forum staat het thema Financieel toezicht centraal. Maar voordat u verder leest is het wellicht goed om uw geheugen even op te frissen. Want hoe zit het financieel toezicht er in Nederland en Europa eigenlijk uit? In Nederland was er tot voor kort een sectoraal toezichtmodel. Dat wil zeggen dat het toezicht per sector van de financiële sector – te weten banken, verzekeringen en pensioenen – is ingedeeld. Omdat de grenzen tussen de financiële ondernemingen en producten steeds verder vervaagde werd deze indeling steeds onhandiger. Meerdere ondernemingen waren nu immers op alle segmenten van de financiële sector actief. In 2001 kondigde de toenmalige minister van Financiën Gerrit Zalm in de kabinetsnota ‘Hervorming van het toezicht op de financiële marktsector’ aan het Nederlands toezichtmodel te zullen kantelen naar een functioneel toezichtmodel (Kamerstukken II, 2001/02, 28 122, nr. 2). Dit model wordt ook wel het ‘twin peaks’ model genoemd, omdat het toezicht wordt onderverdeeld in twee delen. Aan de ene kant van het stelsel het prudentieel toezicht, aan de andere kant het gedragstoezicht. Het prudentieel toezicht is het toezicht op de soliditeit van individuele financiële ondernemingen, ter bescherming van de aan hen toevertrouwde vermogens en de aanspraken van individuele klanten. Het toezicht op de soliditeit van de financiële ondernemingen draagt daarnaast ook bij aan

2 • Voowoord

het beperken van het systeemrisico. Dit is het gevaar dat problemen bij een financiële onderneming overslaan naar de rest van de financiële sector. Het systeemtoezicht richt zich dus op het financiële stelsel als geheel. Hiernaast bestaat er ook het gedragstoezicht, wat gericht is op zorgvuldig marktgedrag van marktpartijen ten aanzien van de overige marktpartijen. Het doel van dit toezicht is om de helderheid en transparantie in marktprocessen te bevorderen. Na een fusie met de PVK zou De Nederlandsche Bank (DNB) verantwoordelijk zijn voor zowel het macro-prudentieel als het micro-prudentieel toezicht, terwijl de Autoriteit Financiële Markten verantwoordelijk zou worden voor het zogeheten gedragstoezicht. Op 1 januari 2007 trad de Wet Financieel Toezicht (Wft) in werking, welke 8 voormalige wetten zou vervangen en beter aan dient te sluiten op dit nieuwe systeem van toezicht op de financiële markten. Nederland is op dit moment echter een van de weinige Europese landen die het sectoraal model heeft verlaten voor een functionele variant. Hiermee rijst de vraag welk model beter is. Beide systemen hebben echter de financiële crisis niet weten te voorkomen, dus is er wel een optimaal model? De artikelen alsmede het interview met de fracties van de VVD en de SP geven u meer informatie over dit onderwerp en proberen onder andere op deze vraag een antwoord te geven. Naast de artikelen vind u in deze editie van het FSR Forum een activiteitenverslag van de European Finance Tour die dit jaar naar Istanbul ging, het FSR Actievenweekend naar Milaan en een verslag van de eerste keer dat de Investment Banking Masterclass werd georganiseerd. En mocht u van plan zijn om richting Griekenland te vertrekken deze zomer, vergeet dan niet de column van de heer Groeneveld te lezen voor een basiscursus Grieks. Ik wens u veel leesplezier! Met vriendelijke groet, Karin Knegt. Commissaris Interne Betrekkingen FSR Bestuur 2009-2010

× Voowoord • 3

fsrforum • jaargang 12 • editie #4

Financieel toezicht

Inhoudsopgave

Grieks voor bedrijfseconomen K(r)anttekening drs. Joost G. Groeneveld RA RV Als jongetje kende ik de Benelux. Ik begreep dat het drie kleine landjes waren die samen iets groter konden zijn. Dat sprak mij wel aan. Later leerde ik dat we eigenlijk ook wel bij elkaar hoorden. De Bourgondische vorsten hadden de landen in de regio aaneen gesmeed; onze vader des vaderlands liep de deur plat in Brussel. Dat we heel verschillend waren, bleek in 1830. En inmiddels zijn we met iedereen in Europa vriendjes. Na de Benelux de Europese Gemeenschap voor Kolen Staal, Euratom, De Europese Economisch Gemeenschap, en ineens de Europese Unie. Met een euro en met steeds meer landen. Als ze bij hun entree nog niet aan alle eisen voldeden, was dit juist een heel goede manier om ze zover te brengen.

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Measuring financial regulation architectures and the role of the central banks: the Financial Supervision Herfindahl Hirschman Index Donato Masciandaro & Marc Quintyn Today policymakers in all the countries, shocked by the financial crisis of the 2007-2008, are reconsidering carefully the features of their supervisory regimes. This paper reviews the changing face of the financial supervisory regimes introducing new indicators to measure the level of consolidation in supervision and the degree of the involvement of the central banks. We show that the new Financial Supervision Herfindahl Hirschman Indexes are (i) consistent with the previous one, (ii) but at the same time more precise, (iii) more robust, given that there we exclude subjective weights and (iv) more easy to use and interpret, given that it applies a well-know methodology of measurement.

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Towards A New European Financial Supervision Architecture Pablo Iglesias Rodríguez On May 27, 2009, the European Commission published a communication supporting the “main thrust” of the recommendations found in the Larosière Report. Additionally, in their June meetings, both the Council of the European Union6 and the European Council indicated their support of the Communication’s main proposals. This consensus has prompted the movement towards a new European ﬁnancial supervision architecture.

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Colofon FSR FORUM is een vijfmaal per jaar verschijnende uitgave van de Financiële Studievereniging Rotterdam KvK Rotterdam nr.: V 40346422 BTW nr.: NL 805159125 B01 ISSN-nr.: 1389-0913 12e jaargang, nummer 4, Oplage 1200

4 • Inhoudsopgave

Redactie Karin Knegt en Fouad Mehadi Redactie Advies Commissie Dr. M. B. J. Schauten Dr. O. W. Steenbeek Prof. Dr. M. A. Van Hoepen RA Drs. R. Van der Wal RA Dr. W. F. C. Verschoor Prof. Dr. F. Hartmann Prof. Dr. G. Mertens

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Inhoudsopgave • 5

fsrforum • jaargang 12 • editie #4

Burden Sharing for Cross-Border Banks

Dirk Schoenmaker, Duisenberg school of ﬁnance

The Single Market in banking has promoted the development of cross-border banking within Europe. While regulation has been moved to the European level (through EU Directives and Regulations), the institutional framework for supervision and resolution of banks is still predominantly at the national level. The recent ﬁnancial crisis indicates that the current situation is not stable. Home countries ignore cross-border externalities when dealing with a failing bank. We need either to move to more Europe, or to less Europe [Turner (2009), Schoenmaker (2010a)]. 6 • Burden Sharing for Cross-Border Banks

1 Introduction The Single Market in banking has promoted the development of cross-border banking within Europe. While regulation has been moved to the European level (through EU Directives and Regulations), the institutional framework for supervision and resolution of banks is still predominantly at the national level. The recent financial crisis indicates that the current situation is not stable. Home countries ignore cross-border externalities when dealing with a failing bank. We need either to move to more Europe, or to less Europe (Turner, 2009; Schoenmaker, 2010a). In the first case, supervision and resolution would also be transferred to the European level. In the second case, the home country principle, which allows cross-border services or branches within the EU from the home country without host supervision, would de facto be abandoned. This could be done by (implicitly) requesting to put major crossborder operations in subsidiaries which are separately supervised by the host country. Some supervisors are already moving towards this route. The debate on the institutional framework has focused so far on the supervisory side. De Larosière (2009) has proposed a European System of Financial Supervisors, with three sectoral European Supervisory Authorities at the centre. These proposals set some useful steps towards European supervision, but the supervisory mandate remains predominantly at the national level. In this article, we argue that we should focus on the end-game of resolution. So, we first need adequate European arrangements for resolution of crossborder banks, before we can move to full European financial supervision. A European resolution regime would ensure that cross-border externalities are taken into account.

of Living Wills. The Living Will is a new concept to deal with too-big-to-fail and consists of a recovery and resolution plan to be used when a bank may get into difﬁculties. Living Wills may thus enable speciﬁc burden sharing institution by institution. This article is organised as follows. In section 2, we examine the scope for cross-border externalities. Section 3 analyses different mechanisms for burden sharing. Section 4 discusses the political economy of burden sharing. Finally, section 5 concludes.

2. Cross-border externalities The (potential) failure of a bank can have negative externalities by affecting other banks or the economy at large. There are several reasons for such externalities (Brunnermeier et al, 2009). The first is the direct exposure channel. This refers to ‘domino effect’ resulting from exposures among financial institutions in interbank markets, derivative markets and payment systems. Financial institutions are interconnected through these markets and systems. Because of these related exposures, the failure of one or more financial institutions can cause other financial institutions to fail, and thereby the whole financial system to be shocked. These effects also exists cross-border. Allen and Gale (2000), for example, incorporate the role of the interbank market in a contagion model by focusing on the physical exposures among banks in different regions and the real linkages between regions. They show how interconnections can lead to contagion.

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The second externality arises from information asymmetries and can be called the pure information contagion

The aim of this article is to explore burden sharing mechanisms that can help to recapitalise ailing cross-border banks. (*) Dirk Schoenmaker

The aim of this article is to explore burden sharing mechanisms that can help to recapitalise ailing cross-border banks. Burden sharing would be the centre-piece of a European resolution framework. To be clear, private sector solutions to deal with ailing banks are the preferred route. Only when the systemic impact of the failure of a large cross-border bank would exceed the cost of recapitalisation, burden sharing should be considered. Following Goodhart and Schoenmaker (2006, 2009), we explore different ex ante burden sharing mechanisms to overcome the co-ordination failure of national authorities. The first is a general scheme financed collectively by the participating countries (generic burden sharing). The second relates the burden to the location of the assets of the bank to be recapitalised (specific burden sharing). The working of the two mechanisms is calibrated with data on large cross-border banks in Europe. As the costs and benefits are better aligned in the specific scheme, the latter is better able to overcome the co-ordination failure. Moving from theory to practical politics, a proposal for burden sharing could be incorporated in the resolution plan

channel. This channel relates to contagious withdrawals when depositors are imperfectly informed about the type of shocks hitting financial institutions (idiosyncratic or systematic). Particular in the context of banks that are funded with short term liabilities, the failure of a single institution can easily trigger such a chain reaction. If an institution fails, this may give albeit noisy signal that the solvency of similar financial institutions maybe in question. After the failure of Lehman Brothers, for example, the solvency of many other US investment banks was questioned. This triggers a run or flight to safety from such financial institutions, even when they themselves are not at increased risk of failure. When the failure of a bank is clearly perceived to be idiosyncratic (e.g. BCCI or Barings), there is no wider contagion. Again, these effects can occur on a cross-border basis and also involve flights from countries perceived to be at risk. The third is the fire-sale of assets, as also happened in the 2007-2009 financial crisis. A real shock, such as the downturn in the US housing market in 2006, or a financial

is Dean of the Duisenberg School of Finance at Amsterdam and Professor of Finance, Banking and Insurance at the VU University Amsterdam. Dirk Schoenmaker (*)

Burden Sharing for Cross-Border Banks • 7

fsrforum • jaargang 12 • editie #4

shock, such as an increase in interest rates, may lead to an initial decline in asset values. When financial institutions are highly leveraged or face liquidity problem, a decline in asset values may force individual financial institutions to sell such assets. The initial sale of assets can turn into a liquidity spiral (Brunnermeier and Pedersen, 2009). A liquidity spiral is an internal amplifying process, whereby falling asset prices financial institutions to sell more (deleveraging), which further drives down asset prices and worsens financial institutions’ balance sheets and net worth. The vicious spiral may ultimately drive prices down well-below fundamental value, when left unchecked.

recapitalisations of banks in difﬁculties, as national authorities have an incentive to play down their share in potential recapitalisation. As the home country has typically the largest stake in the game, the game is reduced to a decision for the home country either to rescue a failing bank as a whole on its own, or to let it fail. The externalities in the home country only are thus weighed against the total cost of recapitalisation, resulting in an undersupply of recapitalisations. There is in essence a free-rider effect in the production of the global public good of ﬁnancial stability.

Empirical assessment Externalities are spill-over effects which markets cannot solve. When assessing the private costs of a bank failure, market participants do not look at the wider impact on the financial system through the exposure or information channels. Moreover, market dynamics may be at the root of the externality. While selling an asset when perceived risk increases may be a prudent response for an individual financial institution, it may cause a collapse in the asset price if many institutions act in this way. The governments can incorporate these externalities in their actions and decision-making. On the basis of an overall welfare calculation, authorities can decide whether intervention in a financial institution is socially optimal (financial stability benefits exceed the total costs) or not. The challenge governments face is that they do not want to undermine market discipline by intervening unnecessarily. Private sector solutions to systemic problems are the preferred route. Only when externalities arise that make that the alternative worse, should public intervention be considered. And even then, governments should retain market discipline as much as possible. When a possible (partial or full) rescue is contemplated, shareholders and unsecured creditors, for example, should share the burden and lose their money first.

Cross-border externalities How in a world with cross-border financial activities are externalities addressed? A starting point would be that national authorities by mandate, accountability or otherwise, place priority on domestic objectives (Herring, 2007; Schoenmaker, 2010b). Examples of such domestic objectives are safeguarding the domestic financial system, protecting the domestic financial system, and minimising the fiscal costs of recapitalisation or insolvency to domestic taxpayers. Guided by these objectives, national authorities typically only take externalities in their own national financial system into account in their decision-making, with cross-border externalities largely ignored (Schoenmaker and Oosterloo, 2005). This leads to globally inefficient outcomes. Considering the case of a bank recapitalisation and applying game theory, several authors have modeled the causes of these externalities in a multi-country setting (e.g., Freixas, 2003; Schinasi, 2007; and Goodhart and Schoenmaker, 2009). In these models, the decision rule is that it is only socially optimal to recapitalise a failing bank when the benefits of preserving financial stability exceed the costs of recapitalisation; otherwise the bank should be put into liquidation. In a single country setting, national authorities make this welfare calculation and accordingly reach the first best solution. But in a multi-country setting, this decision rule can result in an undersupply of

8 • Burden Sharing for Cross-Border Banks

The scope for coordination failure depends on the intensity of cross-border activities. How integrated is the banking system? There are several indicators to measure the spread of banking activities over different countries (Sullivan, 1994). An often used indicator is the Transnationality Index (TNI), which is calculated as an unweighted average of (i) foreign assets to total assets, (ii) foreign income to total income and (iii) foreign employment to total employment. TNI reflects a bank’s foreign business (f). The remainder is a bank’s business in the home country (h). Schoenmaker and Van Laecke (2007) report the TNI for the largest 60 banks using 2005 figures. Table 1 Geographical spread of activities for top 60 banks (2005 figures) American banks Asian-Pacific banks European banks

home country: h 78% 86% 53%

foreign countries: f am 22% 14% 47%

Source: Schoenmaker and Van Laecke (2007).

Table 1 indicates that American and Asian-Pacific banks are primarily domestically oriented (h 5 0.8). The degree of financial integration is limited. So, international coordination failure is less of an issue for American and AsianPacific countries. By contrast, the cross-border penetration of the European banks is close to 50% (f 5 0.5). These data suggest that the European level of integration may lead to coordination failure among European countries. While the Single Market in banking has promoted crossborder banking, national member states are still responsible for crisis resolution. The institutional framework for bank resolution has thus not kept pace with banking integration. By contrast, in the US, banks can be chartered at the federal level and also be resolved at the federal level.

3. European coordination: burden sharing Goodhart and Schoenmaker (2006; 2009) explore ex ante mechanisms for burden sharing in Europe to overcome the co-ordination failure in ex post negotiations. Some would argue that crisis management arrangements for lender of last resort and solvency support should not be specified in advance to counter moral hazard. We agree that constructive ambiguity regarding the decision to recapitalise or not can be useful to contain moral hazard. But the model of Freixas (2003) demonstrates that additional ambiguity over burden sharing would lead to fewer recapitalisations than socially optimal. Our goal is to attain the same clarity at the European level as we currently have at the national level. At the national level, the ministry of finance and central bank bear the financial risk of support operations, if any, and therefore decide on these operations. Clarity at the European level how to share the costs among treasuries and central banks in the case of the failure of a European bank does not increase

Clarity at the European level does not increase moral hazard compared to the national level in the case of the failure of a domestic bank.

moral hazard compared to the national level in the case of the failure of a domestic bank. So we propose full transparency on crisis management arrangements (the ‘how’ question), but constructive ambiguity on the application of these arrangements (the ‘whether’ question). Designing ex ante mechanisms for burden sharing, the following issues arise. First, should all countries join in the burden sharing (each country pays in a banking crisis relative to its size) or only the countries involved (each country pays relative to the presence of the problem bank in its country)? Second, should a fixed key be used to share the burden or a flexible key (accommodating the specific circumstances)? In this article, we explore two main mechanisms for ex ante agreement on burden sharing at the European level: 1. General fund to shoulder the burden, set up by the European Central Bank (ECB) or the European Investment Bank (EIB). All countries contribute according to a fixed key in this scheme; 2. Specific sharing of the burden, financed directly by the involved countries according to some key reflecting the geographic spread of the business of the failing bank. The working of the mechanisms will be illustrated with examples of sharing the burden for the recapitalisation of some European banks. As small- and medium-sized banks tend to be predominantly domestically oriented, we focus on the cross-border activities of large banking groups. To calibrate the numerical examples, table 2 provides some details on the 25 largest banks in Europe. The assets of this top 25 range from € 400 to 2,500 bn. The average minimum capital requirement (calculated as Tier 1 capital - the regulatory minimum of 4% of risk weighted assets) of this group of large banks is € 28.7 bn. These banks conduct on average 57 percent of their business at home (h 5 0.57), 25 percent in the rest of Europe (e 5 0.25), and 18 percent in the rest of the world (w 5 0.18).

General fund In the first general mechanism, a European fund could be set up to shoulder the burden of a recapitalisation. The EU countries could use the European Central Bank (ECB) or the European Investment Bank (EIB) to set up a general fund. There is no need to have a pre-funded (ex ante) fund, if receipts are nationally invested (Ricardian equivalence), since this would just raise the measured fiscal deficit, while changing nothing real. During a crisis, bonds are issued by the ECB or the EIB to finance the recapitalisa-

tion. These borrowed moneys are used to recapitalise the failing bank. This would cover the full nominal value needed for the rescue. The annual servicing costs of the bonds would be paid by the governments. First, interest on the outstanding bonds (flow) is paid out of the fund. Second, any loss on the bonds (stock) is also paid out of the fund. This is a sinking fund for the amortisation of losses. Each participating country j would pay into the fund, as and when needed, according to a relative key (k): kj = gj. We propose to apply a GDP based key (g), which measures a country’s relative share in total GDP. GDP reflects the size of a country’s economy and is an indirect indicator of a country’s financial system. Alternatively, the ECB capital key (c) can be used when applying the ECB route (see the Appendix for the general keys). Although we discuss burden sharing for ailing banks, burden sharing has also been used for a rescue package of loans to Greece. Box 1 illustrates the application of general burden sharing to Greece. The share for Spain is 12.2%. Table 2 Top 25 European Banks (2008 figures) Bank (country)

Min Capital In Ð BN In Ð BN

Assets h (%)

e (%)

1 Royal Bank of Scotland (UK)

70.7

2430.2

2 Deutsche Bank (Germany) (a)

30.1

2127.8

3 Barclays Bank (UK)

37.7

2077.4

4 BNP Paris (France)

40.4

2005.3

5 HSBC (UK)

66.2

1678.5

6 Crédit Agricole (France)

49.8

1554.5

7 UBS (Switzerland)

21.8

1315.0

8 ING Bank (Netherlands)

31.0

1286.5

9 Société Générale (France)

29.3

1091.7

10 Santander Central Hispano (Spain)

45.3

1014.1

11 UniCredit (Italy)

33.0

1010.2

12 Credit Suisse (Switzerland)

22.4

763.8

13 HBOS (UK)

20.0

698.2

14 Dexia (Belgium)

15.5

629.0

15 Intesa Sanpaolo (Italy)

26.2

614.6

16 Commerzbank (Germany)

21.7

604.0

17 Rabobank (Netherlands)

29.4

591.4

18 Crédit Mutuel (France)

24.7

562.0

19 Banco Bilbao Vizcaya Argentaria (Spain)

21.6

524.3

20 Danske Bank (Denmark)

11.6

465.5

21 Nordea Group (Sweden)

15.2

458.0

22 Lloyds TSB Group (UK)

13.9

441.2

23 Landesbank Baden-Württemberg (Germany)

11.8

432.7

100

24 Bayerische Landesbank (Germany)

10.9

407.4

25 Groupe Banques Populaires (France)

17.1

389.9

Average top 25 banks

28.7

1006.9

Source: Updated from Schoenmaker and Oosterloo (2005). Notes: Banks are ranked according to assets (as of year-end 2008). Minimum capital is Tier 1 capital (as of year-end 2008). Home is defined as a bank’s assets in its home country (denoted by h); rest of Europe is defined as a bank’s assets in other European countries (denoted by e); rest of world is defined as a bank’s assets outside Europe (denoted by w; figures not shown). The three categories add up to 100%. a. 2006 figures.

Burden Sharing for Cross-Border Banks • 9

fsrforum • jaargang 12 • editie #4

Numerical example

Box 1 General Burden Sharing for Greece The Greek tragedy seems to have reached its climax on 25 March 2010. In a historical declaration, Euro-area leaders have agreed to a package of IMF assistance and euro-area burden sharing. The politics of the deal are quite clear. Euro-area governments have not been able to discipline one of their peers. By insisting on an intergovernmental approach of gentle peer pressure, euroarea leaders keep on having difficulties enforcing fiscal discipline in Greece. Ultimately there was no way out and Europe was forced to invite the IMF with its famous conditionality. To limit moral hazard, bail-out support should only be given under severe restrictions. An alternative to IMF conditionality would have been vesting supranational powers in the European Commission. But euro-area leaders have shied away from such fiscal discipline from the Commission. Not least because they could find themselves one day at the receiving end. The political union is thus still in the making. Next, as the credibility of the Euro is at stake, euroarea leaders have chosen solidarity with Greece. They have agreed to a general form of burden sharing based on the ECB capital key. Back in 2006, Goodhart and Schoenmaker (2006) did some exploratory work on burden sharing in a banking crisis, not yet thinking of a government crisis. One of their main proposals was to use the ECB capital key. That seemed sensible. In good times, the capital key is used to share the benefits of monetary union, the seignorage. In bad times, the same key is used to share the (potential) costs of keeping the monetary union together. Europe has thus shown that they can achieve solidarity. Finally, how is the burden sharing key calculated? The ECB capital key for a country is the arithmetic average of a country’s share in total GDP and its share in total population. The current ECB capital key is given in the Appendix. First, the ECB capital key (c) needs to be debased from the full set of 27 EU member countries to the 16 euro area members. In addition Greece needs to be excluded. The contribution of each EMU member state is then: cj / Ðj cj (j is EMU member countries with the exception of Greece). The resulting key for Greece’s burden sharing is given in Table 3.

10 • Burden Sharing for Cross-Border Banks

Key (in %) 2.8 3.5 0.1 1.9 20.9 27.9 — 1.6

The ECB/EIB needs to issue € 43.1 bn of bonds to recover the negative equity of € 14.4 bn and to restore minimum capital of € 28.7 bn. The annual interest payment on the bonds is € 2.2 bn. The sinking fund for write down is € 21.5 bn. The annual write down is € 5.4 bn. These amounts add to a total annual cost for countries of € 7.6 bn. Countries that join the burden sharing scheme pay this amount according to the GDP key (gj) as speciﬁed in table A.1 (see the Appendix). The annual contribution is, for example, € 1.5 bn (kj = 20.0%) for Germany and € 0.7 bn (kj = 8.8%) for Spain. This numerical example illustrates that the recapitalisation of a ‘typical’ large European bank appears to need a general fund of € 43.1 bn. The servicing of this general fund results in an annual cost of € 7.6 bn. The contribution of individual countries to the annual cost ranges from € 1.5 bn for Germany to € 0.008 bn for countries such as Cyprus and Malta.

Speciﬁc sharing

Burden sharing key for greece Country 1 Austria 2 Belgium 3 Cyprus 4 Finland 5 France 6 Germany 7 Greece 8 Ireland

The working of a general fund for burden sharing can be illustrated with a numerical example for a possible recapitalisation of a representative European bank i. We make the following assumptions: 1. Li = 1.5 * Ei . There is a large loss (Li). Equity is wiped out and there is negative equity of half of the regulatory minimum capital (Ei). Adequate recapitalisation requires the restoration of the minimum capital requirement; 2. Wi = 0.75 * Ei . In a worst case scenario, the write down (Wi) is the full negative equity with a margin of one-fourth of minimum capital. The write down is over a period of 4 years (given a loss of this extent, it will take at least 3 to 4 years to restore the bank to health and to sell it back to the private sector); 3. i = 5%. Annual interest is 5%; 4. Ei = 28.7 bn. The regulatory minimum capital requirement of a ‘representative’ European bank is € 28.7 bn (average of top 25 banks in table 2); 5. All EU countries join the general fund.

Country 9 Italy 10 Luxembourg 11 Malta 12 Netherlands 13 Portugal 14 Slovakia 15 Slovenia 16 Spain Total euro area-16

Key (in %) 18.4 0.3 0.1 5.9 2.7 1.0 0.4 12.2 100.0

In the second mechanism, only countries in which the failing bank is present share in the burden. Each involved country pays its ‘relevant’ part of the burden. A key can be designed to reflect the relative presence of the problem bank in the different countries. The selection of an adequate key should be related to the aim of a possible rescue (i.e. the social benefits). We see two main aims. The first aim is mitigating the effects on the real economy. The second is mitigat-

How is the burden sharing key calculated? The ECB capital key for a country is the arithmetic average of a country’s share in total GDP and its share in total population.

ing the impact on the wider financial system (contagion). We do not include a third objective of helping depositors. There is already mandatory deposit insurance in the EU to take care of depositors. A good proxy for the real and contagious effects of the failure of bank i is assets (a): kij = aij / (hi + ei). Note that as only European countries join the burden sharing, the key needs to be rebased to the European part (hi + ei) of the assets of bank i (aij). On the real side, assets (including loans) reflect the credit capacity of a bank. The availability of credit will be disrupted in case of a failure (Gale, 1993). On the contagion side, assets reflect the size of a bank. The contagious impact is (partly) related to the size of a failing bank. We have calculated how the assets of the top 25 European banks are allocated between the home market (hi), the rest of Europe (ei), and the rest of the world (wi) for each bank i. While these three categories add up to 100%, we only show the home market and the rest of Europe shares in table 2.

3. i = 5%. Annual interest is 5%; 4. All EU countries join the speciﬁc burden sharing program. The involved countries need to issue € 45.2 bn of bonds to rescue Deutsche Bank (Ei = 30.1 bn). The burden is shared according to the asset key: aij / (hi + ei). The speciﬁc geographic distribution of Deutsche Bank’s assets (in table 1) is used to calculate the respective shares of the countries. Deutsche has 18% of its assets in Germany and 47% of its assets in the rest of Europe. The United Kingdom accounts for over half of assets in the rest of Europe; let’s say 25%. So Germany needs to issue € 12.6 bn of bonds (kij = 0.28), the UK € 17.2 bn (kij = 0.38) and certain other EU countries € 15.4 bn (kij = 0.34). The respective annual costs to service (interest and write down) their bond issue are € 2.2 bn for Germany, € 3.0 bn for the UK and € 2.7 bn for the other EU countries.

There is already mandatory deposit insurance in the EU to take care of depositors.

Numerical examples The working of a speciﬁc burden sharing program can be illustrated with a numerical example for the possible recapitalisation of a few large European banks. Three different banks i are taken to demonstrate the speciﬁcs of each case: a pan-European bank (Deutsche Bank), a regional bank (Nordea) and a global bank (HSBC). Again, we make the following assumptions: 1. Li = 1.5 * Ei . There is a large loss (Li). Equity is wiped out and there is negative equity of half of the regulatory minimum capital (Ei). Adequate recapitalisation requires the restoration of the minimum capital requirement; 2. Wi = 0.75 * Ei . In a worst case scenario, the write down (Wi) is the full negative equity with a margin of one-fourth of minimum capital. The write down is over a period of 4 years (given a loss of this extent, it will take at least 3 to 4 years to restore the bank to health and to sell it back to the private sector);

The involved countries need to issue € 22.8 bn of bonds to rescue Nordea (Ei = 15.2 bn). Nordea has 26% of its assets in Sweden and 74% of the its assets in the rest of Europe. The rest of Europe is divided in 37% in Finland, 23% in Denmark, 10% in Norway and 3% in Poland, Russia and the Baltic States. So Sweden needs to issue € 5.9 bn of bonds (kij = 0.26), Finland € 8.5 bn (kij = 0.37), Denmark € 5.4 bn (kij = 0.23), Norway € 2.3 bn (kij = 0.10) and the other countries € 0.7 bn (kij = 0.03). The respective annual costs to service its bond issue are € 1.0 bn for Sweden, € 1.5 bn for Finland, € 0.9 bn for Denmark, € 0.4 bn for Norway and € 0.1 bn for the other countries. The involved countries need to issue € 99.3 bn of bonds to rescue HSBC (Ei = 66.2 bn). HSBC has 36% of its assets in the UK and only 15% of the its assets in the rest of Europe. France counts for 13% of assets in the rest of Europe. So the UK needs to issue € 70.1 bn of bonds (kij = 0.71), France

Burden Sharing for Cross-Border Banks • 11

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The goal of selecting an appropriate key is to align the beneﬁts and the contribution to the costs as much as possible.

€ 25.3 bn (kij = 0.25) and certain other EU countries € 3.9 bn (kij = 0.04). The respective annual costs to service its bond issue are € 12.3 bn for the UK, € 4.4 bn for France and € 0.7 bn for the other EU countries. Summing up, it appears that in the case of the Scandinavian bank, Nordea, the costs are shared almost equally by the four Scandinavian countries, Denmark, Finland, Norway and Sweden. This is a clear example of a regional distribution of the burden. The costs of rescuing a pan-European bank, such as Deutsche Bank, is spread over Europe with large contributions by the home country, Germany (28%), and Europe’s financial centre, London, in the United Kingdom (38%). Finally, the burden sharing for the international bank HSBC, headquartered in London, would be difficult. Only half of HSBC’s business is in Europe (52% of which 36% in the UK, 13% in France and 2% in other European countries), while these European countries have to shoulder the full burden in a European based specific burden sharing programme. Finally, there are some concerns surrounding both mechanisms. First, there is a concern with foreign banks in small countries. What if the bank is systemic in the host country, but not in the home country? The bank might then not be rescued. This could be a problem for the New Member States in particular. To alleviate this problem, the key could be made a function of the assets of the problem bank in a country and the assets of the problem bank in that country divided by the total assets of that country’s banking system. The small countries would then shoulder a larger share of the burden and have an, accordingly, larger share in the vote. However, the, mostly West-European, parent banks of the subsidiary banks in Eastern Europe are often large retail banks, that are also systemic in the home country. Second, it could be difficult to organise burden sharing for truly international banks which have a large part of their business outside Europe. While only a part of the benefit will fall within Europe, the European countries have to pay the full cost. Examples are the Swiss banks (UBS and Credit Suisse) and HSBC (see table 2). Moreover, such mechanisms fail to address crisis problems caused by the failures of banks headquartered outside Europe, e.g. in the Americas, Asia or Australia. That said, the specific approach to burden sharing could be undertaken for any international group, not just within the EU. Indeed, the wider the set of countries involved, the better. There would be nothing, in principle, to stop such cross-border burden sharing arrangements being extended beyond the EU to encompass the USA, Australia, Japan, and other willing countries.

It should be noted, however, that a legal basis is needed to create binding ex ante burden sharing arrangements. We believe that Memoranda of Understanding (MoUs), which are often used between national supervisors (and central banks), will not be sufﬁcient because MoUs (soft law) are not enforceable. A legal basis (hard law) can be readily provided within the EU (the legal instruments and the institutional framework to negotiate and enforce such instruments are available). Legally binding arrangements beyond the EU (i.e. a full international Treaty) may be much more difﬁcult to get agreed, signed and enforced.

4. Political economy of burden sharing Which mechanism is better? This is not only an issue of economics but also of political feasibility (Pauly, 2009). The main determinant is the specification of the key for burden sharing. The goal of selecting an appropriate key is to align the benefits and the contribution to the costs as much as possible. The general fund mechanism is an example of generic burden sharing by countries (proportionate to the size of the participating countries). The costs of recapitalisation are smoothed over the participating countries, irrespective of the location of the failing bank. In addition, the costs are smoothed over time. From a macro-economic perspective, these smoothing mechanisms are positive. However, we see two major problems with such a general fund mechanism. First, this construction will lead to international transfers between countries (a country may have to contribute its share to a recapitalisation while the problem bank is not operating in its jurisdiction). Countries are politically not keen to sign up for schemes with built-in transfers, unless there is strong political commitment for solidarity (e.g. development aid and, less so, European regional funds). This is a reflection of the earlier mentioned problem that benefits and costs are not aligned. Second, general burden sharing generates adverse selection and moral hazard problems. Countries with weak banking systems profit over countries with strong banking systems. Therefore, countries with strong banks are less inclined to sign up (adverse selection). As the link between payment for a recapitalisation and responsibility for ex ante supervision is lessened, supervisory authorities may feel less of an incentive to provide an adequate level of supervisory effort (moral hazard). Countries that do not sign up to burden sharing profit from burden sharing, as the stability of the European financial system is a public good. An important political advantage of specific sharing arrange-

Burden Sharing for Cross-Border Banks • 13

fsrforum • jaargang 12 • editie #4

ments is that there are almost no international transfers. Countries that experience the benefits of the recapitalisation, also pay for the recapitalisation. Provided that assets are a good proxy for measuring the benefits (i.e. averting the real and contagious effects of a bank failure), the costs and the benefits are fully aligned. The specific sharing scheme is also incentive compatible: the fiscal authorities as principal will require from the supervisor as agent an optimal level of supervisory effort. As in the general fund scheme, however, the specific sharing is subject to a free-rider problem. Countries that do not sign up to burden sharing profit from burden sharing, as the stability of the European financial system is a public good. This would be, in particular, a problem for the United Kingdom. All major banks have a large presence in London. 21% of banking assets in the EU are located in the UK, while the UK’s share in the EU economy is far lower at 15% of GDP (see the Appendix). So it might be more difficult for the UK to join such a specific sharing arrangement. The UK would have to pay a sizeable proportion of such burden sharing, as can be seen in the numerical example of Deutsche Bank. But, at the same time, the UK might also experience sizeable stability benefits from pre-arranged recapitalisations. An important technical issue is gaming on the key. A country may have an incentive to put pressure on a faltering bank to move assets cross-border or off-balance (securitisation) to reduce its share in any such burden sharing. To prevent lastminute asset movements at the onset of banking problems, we would propose to use the last audited (and published) figures on assets. Moreover, securitisation does not pose a problem if it is properly done (i.e. the risk has really gone from the balance sheet in line with the Basle II rules on securitisation). Finally, there are various ways of measuring assets, for

that there is a collective vote of all involved countries: they jointly decide to rescue or to close the bank. Given that most European banks do not have a relatively equal spread over all European countries, the voting in the general scheme will be sub-optimal to the voting in the specific scheme. Summing up, specific burden sharing is prefered as it offers a more efficient solution to the co-ordination problem of individual banks in difficulties (economics) and does not involve cross-border transfers of taxpayers money (politics). At a later stage, a general mechanism may be considered. When one moves to the mode of a full blown banking crisis, the differences between the mechanisms become less relevant and macro-economic factors, such as a deep recession or large terms of trade decline, come into play (see, for example, Caprio and Klingebiel, 1997; Kaminsky and Reinhart, 1999; Honohan and Klingebiel, 2003). During such crisis periods, the authorities (governments and central banks) will need to stand behind the banks and implicitly or explicitly guarantee their deposits to restore confidence in the financial system. This is the experience of most countries in the 2007-2009 financial crisis, and earlier of the Scandinavian authorities during the 1990s. A case in point of (implicit) burden sharing during a crisis is the application of the lender of last resort (LOLR) function of the ECB (Schoenmaker, 2010b). The ECB can act as general LOLR flooding the interbank market with liquidity when needed. Art 18.1 of the Statute of the ESCB provides the basis for this classical central banking tool: “In order to achieve the objectives of the ESCB and to carry out its tasks, the ECB and the national central banks may … conduct credit operations with credit institutions and other market participants, with lending based on adequate collateral”. So, the ECB needs to take adequate collateral. During the 2007-2009 financial crisis the ECB has expanded the range of eligible

Specific burden sharing is prefered as it offers a more efficient solution to the co-ordination problem of individual banks in difficulties (economics) and does not involve cross-border transfers of taxpayers money (politics). example, risk-weighted assets or not, and historic cost or market value. At this early stage in the discussion we would not want to try to be too specific, except to note that, in order to deter gaming, the key should relate to the last pre-crisis set of audited figures, not to post-crisis estimates. Insofar assets are a good proxy for the real and contagious effects of a bank failure, the specific sharing mechanism will come close to an efficient solution of the co-ordination problem. Countries facing systemic disruption are asked to contribute. They will do so if the stability effects in their country exceed their contribution. The general mechanism will work differently: there need to be a majority of countries that have sufficient benefits. Regional banks (Scandinavia, Benelux) will, for example, never be rescued, because the share of their countries in the vote is too small. Remember that we assume

14 • Burden Sharing for Cross-Border Banks

collateral. As the range of collateral expands beyond safe assets such as Treasuries, credit risk increases. The ECB has made a provision of EUR 5.7 billion for the increased credit risk of its general LOLR operations. The national central banks (NCBs) have underwritten this provision according to their capital key in the share capital of the ECB. As each NCB is backed by its own government, the ECB’s expansion of collateral rules is implicitly underwritten by the national governments of the euro area. Moving from theory to practical politics, Avgouleas, Goodhart and Schoenmaker (2010) suggest to incorporate a proposal for burden sharing in the resolution plan of Living Wills. A Living Will is a recovery and resolution plan to be used when a bank may get into difﬁculties. Living Wills will

thus enable specific burden sharing institution by institution. In a well-designed specific burden sharing system, each country’s contribution to the costs (i.e. the share in the burden) is aligned with that country’s benefits (i.e. the maintenance of financial stability). Countries facing systemic disruption are asked to contribute. They will do so if the stability effects in their country exceed their contribution. To be practical, only the countries from the core supervisory college are involved in the resolution plan. A core supervisory college could for resolution purposes turn into a cross-border stability group containing the supervisors, central banks and ministries of finance from the core countries. Such cross-border stability groups are currently suggested for the EU (European Union, 2008). As full burden sharing across the EU, or even wider globally, is politically not feasible at this stage, a start could be made among more likeminded countries at the regional level (Dermine and Schoenmaker, 2010). To illustrate the working of institution by institution burden sharing, Dermine and Schoenmaker (2010) use the equity-to-GDP ratio (based on book value) as an indicator of the unexpected losses that could arise and of the subsequent public bailout costs. Applying this indicator, Sweden faces a potential bailout cost for Nordea of 5.3% of its GDP (2007 figures). Under a burden sharing system of the core countries, the four Nordic countries (Denmark, Finland, Norway, and Sweden) split the bill almost equally (24%, 39%, 11% and 27%; see Table 2). Burden sharing would thus substantially reduce Sweden’s share from 5.3% to 1.4% of its GDP. The preparation of a burden sharing arrangement in a resolution plan strengthens the cohesion in the core supervisory college. As each core country may have to pay up, it has an incentive to make sure that supervision is properly done to minimise the possibility of failure. So the key host supervisors will be induced by their ministries to take fully part in the supervisory college of a particular bank. In that way, the urgency for making a periodic joint assessment of the soundness of this particular bank by all involved supervisors will increase.

Integrated framework An integrated framework for ﬁnancial supervision and ﬁnancial stability involves three stages: preventive, remedial and resolution. Table 3 presents these stages, in a stylised manner. The presence of various stages already shows that the stages and the different tools in each stage are interre-

lated and the tools should thus be considered jointly with each other. When designing new European arrangements, policymakers usually work from preventive to resolution. So, first supervisory arrangements are addressed. De Larosière Group (2009), for example, proposes a European System of Financial Supervisors, with three new European Supervisory Authorities (ESAs) at the centre. We propose the reverse; we should work backwards from the endgame of resolution (burden sharing). The framework guiding the interventions at the various stages of various actors should be incentive compatible. It is clear analytically, and as confirmed by this and past crises, that incentives to intervene using the various prevention and remedial actions will be driven by the (financial) resources at risk from failing to take proper actions. As such, prevention and remedial actions are closely interrelated with resolution. This analysis helps to decide on how best to design the division of powers in table 3. Goodhart and Schoenmaker (2006) propose a backward-solving approach starting at resolution (the right-hand column in table 3). The guiding principle for decision-making on crisis management is “he who pays the piper calls the tune”. Table 3 Toolkit for financial supervision and stability A Supervision of individual financial institutions

B Overall ﬁnancial stability

I Preventive 1 licensing

II Remedial 1 internal controls

III Resolution 1 private sector solution 2 ongoing supervision 2 management 2 bankruptcy/ restructuring 3 liquidity rules 3 individual LOLR 4 capital requirements 4 individual capital (cross-sectional) injection 1 ﬁnancial system 1 liquidity charge 1 general LOLR design 2 ﬁnancial stability 2 capital surcharge 2 general capital review (longitudinal) support

Source: Schoenmaker (2010b).

Table 4 Current division of powers A Supervision of individual ﬁnancial institutions B Overall ﬁnancial stability

I Preventive National

II Remedial National

III Resolution National

European/national

None

European (general lolr) National (general capital)

Source: Schoenmaker (2010b).

This interrelation also means that the interventions in each stage should be managed at the same geographical level – national or European (Goodhart and Schoenmaker, 2006). That is currently not the case. Table 4 provides the current division of powers in the European Union. The supervisory tools are in the realm of national authorities. Although there is some coordination in the level 3 supervisory committees (CEBS, CEIOPS, CESR), formal powers rest ﬁrmly at the national level. The stability tools are more of a mixed bag.

Burden Sharing for Cross-Border Banks • 15

fsrforum • jaargang 12 • editie #4

So long as liquidity or capital injections or other forms of (ﬁscal) burden sharing are organised and paid on a national basis, so long will national governments normally want to oversee and undertake supervision functions.

Both the ECB and national central banks are active in improving the infrastructure and publishing financial stability reviews. There are no financial stability tools at the remedial stage. This is an important gap in the toolkit, both in Europe and elsewhere. Perotti and Suarez (2009) propose a liquidity charge for liquidity mismatches. Another tool would be a macro-prudential capital surcharge which moves countercyclical. At the resolution stage, there is a split between general LOLR responsibility for the ECB and general capital support by national governments. What do we conclude from our backward-solving approach? So long as liquidity or capital injections or other forms of (fiscal) burden sharing are organised and paid on a national basis, so long will national governments normally want to oversee and undertake supervision functions. What otherwise is the incentive for a national supervisor to put in sufficient effort, when the costs of failing supervision are shared with other countries? Why would national governments be prepared to support ailing banks, when another European agency has neglected its duty? With the implementation of De Larosière proposals some steps are set towards European supervision. We argue that the final step to full European supervision can only be set after adequate burden sharing arrangements are in place to enable a European resolution approach.

5. Conclusions The management of a banking crisis is always difficult. Decisions, for example to close or to recapitalise an ailing bank, have to be taken under time pressure. Theory suggests that recapitalisation of a failing bank is only efficient if the expected benefits (prevention of a systemic crisis) exceed the costs of a recapitalisation. Crisis management is even more difficult in a cross-border setting, in which various countries have to coordinate. Applying the model of Freixas (2003), it can be shown that ex post negotiations on burden sharing lead to an underprovision of recapitalisations. Countries have an incentive to understate their share of the problem in order to have a smaller share in the costs. The model suggests that the home country would be left with the decision, including the funding, on the recapitalisation of a failing bank. We doubt whether the home country supervisors, politicians and taxpayers would, in the event of a failure of a large crossEuropean bank, be prepared to meet the costs of recapitalising such a bank in its entirety (see, for example, the failure of the Icelandic banks and the lack of co-ordination between the Belgian and Dutch authorities in the case of Fortis).

16 • Burden Sharing for Cross-Border Banks

While depositors would be partly protected by national deposit insurance, the bank itself, perhaps outside its own country, would then probably be forced to close. Such abrupt closure could cause widespread concern and systemic effects. If pan-European burden sharing to allow for cross-border recapitalisation is to be made possible, it would have to be on the basis of agreed ex ante rules. This paper explores two sets of ex ante burden sharing mechanisms. The first is a general mechanism, based on full solidarity between EU member states. The underlying assumption is that financial stability is a truly public good. While general burden sharing has some attractive smoothing properties, it runs into problems of causing cross-border fiscal transfers and adverse selection (countries with a weak banking system are keen to join the burden sharing scheme). The second is a specific burden sharing mechanism. The assumption is that financial stability is only affected in the countries in which the bank is located. These countries contribute according to the geographical spread of that bank’s business. Specific burden sharing has somewhat fewer problems. As a country’s benefits (in the form of preserving systemic stability) and that country’s contribution to the costs are better aligned in the specific burden scheme, this latter scheme is better able to overcome the co-ordination failure. Burden sharing is politically very controversial (Pauly, 2009). The recent financial crisis provides a (very small) window of opportunity to act. To get started, a proposal for burden sharing could be incorporated in the resolution plan of Living Wills (a new concept to deal with too-big-to-fail). Living Wills may thus enable specific burden sharing institution by institution.

Appendix. Country keys Table A.1 contains several keys that can be used to share the costs in case of a general burden sharing mechanism for a banking crisis. The GDP key is a country’s share in total GDP. GDP reﬂects the wealth of a country and is an indirect indicator of the size of a country’s ﬁnancial system. The ECB capital key for a country is the arithmetic average of a country’s share in total GDP and its share in total population. The ECB capital key is used to share the monetary income (seigniorage) of the ECB. The assets key is total assets of credit institutions (banks) in a country divided by total assets of EU-27 credit institutions. The banking assets key is a direct indicator of the size of a country’s banking system.

Table A.1 Country Keys (in %, 2008 ﬁgures) Country Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden UnitedKingdom Total EU-27

GDP 2.3 2.7 0.3 0.1 1.2 1.9 0.1 1.5 15.6 20.0 1.9 0.8 1.5 12.6 0.2 0.3 0.3 0.0 4.8 2.9 1.3 1.1 0.5 0.3 8.8 2.6 14.5 100

ECB Capital Key 1.9 2.4 0.9 0.1 1.4 1.5 0.2 1.3 14.2 18.9 2.0 1.4 1.1 12.5 0.3 0.4 0.2 0.1 4.0 4.9 1.8 2.5 0.7 0.3 8.3 2.3 14.5 100

Assets 2.5 3.0 0.1 0.3 0.4 2.6 0.1 0.9 17.1 18.7 1.1 0.3 3.3 8.6 0.1 0.1 2.2 0.1 5.3 0.6 1.1 0.2 0.2 0.1 8.0 2.1 20.9 100

Source: Website ECB (www.ecb.int) for ECB capital key. GDP and Assets are based on Structural Indicators for the EU Banking Sector, ECB (2010).

Notes 1. Nevertheless, BCCI might have had some contagion in the so-called “ethnic bank” crisis in the UK. 2. That is what happened, for example, in Lehman failure. While Lehman had many foreign operations, including a large operation in the UK, the US authorities resolved Lehman on domestic grounds. In that context, the Federal Reserve Bank of New York provided liquidity to the US broker-dealer (LBI) in order to effect an orderly wind-down outside of bankruptcy, but not for the foreign parts which had to file immediately for bankruptcy (Basel Committee of Banking Supervision, 2010). 3. The ECB could then be used in General Council format, in which all EU Member States participate. For the EIB, the EU Member States are the shareholders, and thus the owners, of the EIB. 4. Norway is not a member state of the European Union. For this example, we assume that Norway as member of the European Economic Area joins the specific burden sharing scheme. 5. An issue for discussion is whether assets are a good proxy for the presence of banks in the UK. The London operations of the major banks are primarily wholesale. This should make no difference for measuring the contagious effects. But the real effects can be overstated as these effects are more related to retail than to wholesale operations of banks. 6. The ECB used the ECB capital key to share the provisions (see Appendix). The ECB capital key is debased to the euro area members. The contribution of each EMU member state is : cj / Ȉ j cj (j is EMU member countries). 7. Taking a different view, Posen and Véron (2009) argue that the arrangements for supervision and stability can be considered separately. In the European context, Posen and Véron propose to move supervision to the European level, while leaving the more thorny issue of burden sharing aside and thus to keep the core of crisis management (capital support by the government) at the national level. 8. See, for example, the arrangements in Europe. As there is no fiscal back-up for the European Central Bank (ECB), the ECB is happy to let the national central banks (NCBs) take the lead on individual lender of last resort operations.

Burden Sharing for Cross-Border Banks • 17

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Eerlijk over werken bij AEGON AEGON biedt ﬁnanciële oplossingen voor ieder moment in het leven. Verzekeringen, pensioenen, hypotheken, spaarproducten en beleggingsproducten. In Nederland werken wij met circa 3200 mensen vanuit vier kantoren om mensen te helpen aan een betere ﬁnanciële toekomst. Deze kantoren staan in Den Haag, Leeuwarden, Nieuwegein en Groningen. Wereldwijd werken zo’n 31.500 mensen voor AEGON. Wij zijn actief in de Verenigde Staten, Europa, Canada en het Verre Oosten. Daarmee is AEGON één van ’s werelds grootste beursgenoteerde verzekeraars.

Werken bij AEGON Werken kun je bij meer bedrijven. Waarom AEGON? Het antwoord ligt uiteindelijk bij jezelf. We kunnen je wel helpen met wat feiten. AEGON is een standvastige organisatie die weet wat hij wil. Het doel is de beste en grootste pensioenen inkomensverzekeraar te zijn. En dat is meer dan pensioenen en schadeverzekeringen. Het is behoud van inkomen en bezit. Nu en later. Bij de grootste moet je niet meteen denken in getallen en euro’s. De grootste en beste willen zijn betekent toonaangevend willen zijn in het nemen van verantwoordelijkheid. Dat we baanbrekend willen zijn met integere, transparante producten en diensten. De toekomst kunnen we niet voorspellen. Wat we wel kunnen: ons steeds aanpassen. Elke dag weer vernieuwen en verbeteren. Met die instelling zijn we klaar voor morgen. Kom maar op.

Mogelijkheden Als je met plezier naar je werk gaat, presteer je beter. Dat is goed voor jou. En als je bij AEGON werkt, is dat ook goed voor AEGON. Dat plezier in je werk is natuurlijk persoonlijk. Toch kunnen we er iets over zeggen dat vrijwel iedereen aanspreekt die bij AEGON werkt: Je wilt het verschil maken. Je wilt de ruimte om te ondernemen. Je wilt vast en zeker je ambities kunnen uitleven.

Wat is jouw doel? We zijn op zoek naar zelfbewuste en ondernemende mensen die verantwoordelijkheid nemen. We kijken naar je sociale vaardigheden en je realisatiekracht. Krijg je een goed gevoel bij begrippen als zelfstandigheid, ambitie en ondernemen? Dan willen we graag weten wat jouw doel is. We kunnen je nog genoeg vertellen. Maar wij zijn vooral ook benieuwd naar wat jij te vertellen hebt. Voor concrete startfuncties of stages bij AEGON kijk je op onze website: www.aegon.nl/werk Meer weten? Bel dan met Ineke ten Cate op 070 344 5372, of stuur een mailtje naar Campus@aegon.nl

fsrforum • jaargang 12 • editie #4

Grieks voor bedrijfseconomen

K(r)anttekening | Drs. Joost Groeneveld RA RV

Als jongetje kende ik de Benelux. Ik begreep dat het drie kleine landjes waren die samen iets groter konden zijn. Dat sprak mij wel aan. Later leerde ik dat we eigenlijk ook wel bij elkaar hoorden. De Bourgondische vorsten hadden de landen in de regio aaneen gesmeed; onze vader des vaderlands liep de deur plat in Brussel. Dat we heel verschillend waren, bleek in 1830. En inmiddels zijn we met iedereen in Europa vriendjes. Na de Benelux de Europese Gemeenschap voor Kolen Staal, Euratom, De Europese Economisch Gemeenschap, en ineens de Europese Unie. Met een euro en met steeds meer landen. Als ze bij hun entree nog niet aan alle eisen voldeden, was dit juist een heel goede manier om ze zover te brengen. Met de uitbreiding in het oosten zou de ﬁnanciële steun voor Zuid-Europa veel minder moeten worden – je kunt nu eenmaal niet alles tegelijk doen – maar het moest,

Niet omdat we die Grieken, Spanjaarden, Portugezen, Ieren zo verschrikkelijk aardig vinden, maar omdat onze pensioenfondsen en banken weer eens van mening waren dat onze pensioen-miljarden daar wel aardig werden belegd. Dus dan zit er niets anders op dan vol te houden dat het zo’n vaart niet hoeft te lopen. Dan waardeer je de vorderingen nog even niet af, want waarom zou je die 16%-kostenvoet serieus nemen als er dalijk toch grootmachten klaar staan om tegen 5% te lenen? Weer eens een risico dat niet in rekening wordt gebracht. Daarmee is het risico niet weg. Dat wordt nu gespreid over de burgers van alle landen. In plaats van steun aan banken wordt het een lening aan de Griekse staat. In plaats van korting op pensioen-uitkeringen omdat de dekkingsgraad weer eens is verminderd, springt de staat bij. In de hoop dat de Grieken iets doen wat nog nooit is vertoond: in 3

Wat vroeger met valutakoersen kon worden opgelost, trekt nu aan ons allemaal. Drs. Joost G. Groeneveld RA RV is directeur van Wingman Business Valuators B.V. te Breda en voorzitter van de Stichting WBO (register van business valuators). Hij was hoofddocent aan de Economische Faculteit van de Erasmus Universiteit te Rotterdam.

en het was uiteindelijk ons eigen belang. Soms weet je zelf niet wat goed voor je is. Het is steeds ons eigen belang. Het was natuurlijk een uitgelezen kans. Die voormalige Warschau-landen zouden nu bij ons gaan horen. Toch een teken dat je echt hebt gewonnen. En ze zouden de NATO sterker maken. De keizerrijken van weleer - Duitsers, Habsburgers, Fransen en Britten – aaneengeregen. Rome en Athene waren wel erg lang geleden, maar mochten toch meedoen. Door hun kunstschatten in het Louvre en het British Museum was het toch vertrouwd volk. Het Ottomaanse rijk is nog even in de ijskast gezet. Niets mis mee, behalve dat de westerse democratie nog niet overal even sterk was. Zo hier en daar de corruptie welig tierde. Mensenrechten niet overal werden gerespecteerd. En misdaad soms tot welhaast in perfectie was georganiseerd. Wie daarop let is een kniesoor. We hadden toch al mooi 60 jaar geen oorlog meegemaakt. Dat was in onze streken al een paar honderd jaar niet zo lang volgehouden, en dat dankten we aan de eenwording. En nu blijkt dat er wel iets mis mee is. De veronderstelde eenheid is er niet. Wat vroeger met valutakoersen kon worden opgelost, trekt nu aan ons allemaal. Daarom zijn we solidair.

20 • Grieks voor bedrijfseconomen

jaar het overheidstekort terugbrengen met 10%. Dat is niet een besparing van 10%, want het telt dubbel: ook de overbesteding van de laatste jaren moet worden teruggedraaid. In Griekenland lijkt het zwart-geld-circuit uitgebreid te zijn en goed geïncorporeerd in de samenleving. Dat biedt in de huidige omstandigheden 2 mogelijkheden. Het is een reservoir om te worden aangesproken nu er moeilijkheden zijn. Of het netwerk wordt geïntensiveerd in gebruik. Niet meer afrekenen in geld maar in natura. Bij een BTW-percentage van 23% wordt dat best wel aantrekkelijk. De witte inkomens verdwijnen als sneeuw voor de zon. Het laatste lijkt me niet geheel onwaarschijnlijk. Het nationale inkomen in euro’s gemeten zal dus wel afnemen. Een tekort dat gelijk blijft, zal dus als percentage toenemen. En in de termen van de Europese Unie is dat het criterium. Omgekeerd: alleen groei kan helpen, maar waar moet die vandaan komen. Is er een planbureau dat zulke berekeningen heeft gemaakt? Is het niet onze eigen recente ervaring dat herstel om stimuli vraagt? Zijn er plannen om de Griekse economie te stimuleren? Moeten we daar nu massaal op vakantie? Of moeten we vooreerst toch nog maar in eigen land blijven? Laten we het eens van de andere kant bekijken. Griekenland was en is een arm land. Daar zijn we kennelijk aan voorbijge-

gaan. We hebben het land met schulden opgeladen waarvan je al bij voorbaat had moeten afvragen hoe die konden worden terugbetaald. Het risico is er echt niet pas deze week. De toelating van Griekenland tot de Unie heeft een prijs die nu moet worden betaald. En weer wordt het uitgesteld in 5%-leningen tot over 3 jaar. Griekenland is failliet. Ze maken een doorstart met nog meer schulden dan voorheen? En de reorganisatie bestaat uit bezuiniging. In de ﬁnanciële pers wordt bij winstcijfers van ondernemingen met regelmaat gewaarschuwd: “Ja, mooie cijfers, maar vooral door bezuiniging, en dat kan maar éénmaal iets opleveren”. Moet de algemeen econoom hier niet iets leren van de bedrijfseconoom? We hebben de Grieken verweten dat ze op de pof leven. In feite doen we dat nu ook zelf. Het is een faillissement dat bij gebrek aan baten moet worden uitgesproken. Maar de vorderingen worden niet nu afgewaardeerd. Er zullen wel boekhoudregels zijn die daarin voorzien. Daarmee leven we in een schijnwereld. En houden we onszelf voor de gek. Er is nog een probleem. Onze banken hebben aan Griekenland, Spanje en Portugal zo’n € 150 mrd geleend. Ik vind dat best veel geld. Als je je gaat afvragen waarom ze al dat geld daar

Waar zou je als bank zonder staatsleningen moeten blijven? hebben uitgeleend, is het antwoord eenvoudig. Ze konden het nergens beter uitlenen. Ze kregen in ieder geval wat rente. Niet genoeg voor al het risico, maar dan toch wel iets. Het is het probleem van het geldoverschot. Nog niet zo heel veel jaren geleden had ook Nederland een overschot. Waar moet je met al dat geld naartoe? In de knip houden leverde niets op. Dus je leende het te goedkoop uit. De winst werd belangrijker gevonden dan de waarde. Met het wegvallen van die landen als kredietnemer moet het geld ergens anders naar toe. Misschien wel een goed idee om het de Nederlandse overheid ter beschikking te stellen. Daar krijg je als bank je procenten met een triple-A rating. Waar zou je als bank zonder staatsleningen moeten blijven? Intussen zou ik die sommetjes waaruit blijkt dat elke burger in Nederland nu € 300,- bijdraagt, maar serieus nemen. Dat is onze subsidie aan deze mallemolen. Dalijk gaat bij ons ook de BTW omhoog. Maar dat zal dan wel na de verkiezingen zijn. Vooralsnog sta ik op het punt om met vakantie te gaan. Naar het arme zuiden van Italië. U begrijpt wel, dat doe ik om de economie daar op orde te houden. Ik zal overal om een bonnetje vragen. Dus ik kan mij volledig verantwoorden. Mijn boekhouding zal onberispelijk zijn. Ik zal daar meer uitgeven dan mijn bankier lief is. Ik zal met schulden overladen terugkomen. En dan hoop ik maar dat u mij daarin wil bijstaan met een milde subsidie. Ik dank u bij voorbaat.

Grieks voor bedrijfseconomen • 21

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Measuring financial regulation architectures and the role of the central banks: The financial supervision Herfindahl Hirschman index Donato Masciandaro, Marc Quintyn

Today policymakers in all the countries, shocked by the financial crisis of the 2007-2008, are reconsidering carefully the features of their supervisory regimes. This paper reviews the changing face of the financial supervisory regimes introducing new indicators to measure the level of consolidation in supervision and the degree of the involvement of the central banks. We show that the new Financial Supervision Herfindahl Hirschman Indexes are (i) consistent with the previous one, (ii) but at the same time more precise, (iii) more robust, given that there we exclude subjective weights and (iv) more easy to use and interpret, given that it applies a well-know methodology of measurement.

22 • Measuring financial regulation architectures and the role of the central banks: The financial supervision Herfindahl Hirschman index

Introduction Only the years ago, the issue of the shape of the financial supervisory architecture was considered irrelevant. The fact that only banking systems were subject to robust and systematic supervision kept several of the current problems in the sphere of irrelevance. In such a context. Since then, financial market development, resulting in the growing importance of insurance, securities and pension fund sectors, has made supervision of a growing number of non-bank financial intermediaries, as well as the investor protection dimension of supervision, highly relevant. In June 1998 most of the responsibility for banking supervision in the United Kingdom (UK) was transferred from the Bank of England to the newly established Financial Services Authority (FSA), which was charged with supervising all segments of the financial system. For the first time a large industrialized country – as well as one of the main international financial centres - had decided to assign the main task of supervising the entire financial system to a single authority, other than the central bank (the UK regime was labelled tripartite system, stressing the need of coordination in pursuing financial stability between the FSA, the Bank of England and the Treasury). The Scandinavian countries - Norway (1986), Iceland and Denmark (1988) and Sweden (1991) - had preceded the UK in the aftermath of a domestic financial crisis. But after that symbolic date of 1998, the number of unified supervisory agencies has grown rapidly. Europe has been the centre of gravity regarding the trend towards consolidation. The UK was even not the flag bearer of the unification trend. But it is no exaggeration to state that the establishment of the FSA really opened the gate to widespread reforms worldwide. In addition to the UK, four

financial stability and business conduct supervision. After the crisis the experience of the past months provides evidence that the move towards more integrated and complex financial markets has exposed the system to a growing risk of costly financial turmoil. The consequent concern for the health of the banking and financial industry has caused renewed attention to the supervisory settings. Policymakers and supervisors in all the countries, shaken by the financial crisis, are wondering if they need to reshape their supervisory regimes (yet again). In general, the financial crisis seems to have challenged all the designs of the supervisory settings, whether they are unified or not. In the UK, Finance Minister Alistair Darling commissioned a report to the FSA (FSA 2009), which, among other things, discussed an alternative division of responsibilities between prudential and conduct of business supervision. In June 2009 the UK House of the Lords published its report on the future of EU financial supervision and regulation (House of the Lords 2009). Meanwhile, Switzerland and Finland adopted a unified structure between 2008 and 2009. During the 2008 in Austria – where the supervision is shared between the Financial Market Authority and the Austrian Central Bank - a reassessment of the supervisory setting was implemented, shifting more responsibilities for on site supervision to the central bank and enhancing the cooperation between the two authorities. On July 2009 the UK Prime Minister Gordon Brown released a White Paper, which maintain the system of supervision established in 1998. At the European Union level, the debate about the design of a European system of supervision has come off the ground in earnest (see among others, CEPS, 2008, The de Larosière Group, 2009 and Hardy, 2009). The de Larosiere group presented its report to the Commission in early Spring of 2009.

Donato Masciandaro Department of Economics and Paolo Bafﬁ Centre, Bocconi University, Milan

Marc Quintyn IMF Institute, International Monetary Fund, Washington

Europe has been the centre of gravity regarding the trend towards consolidation. The UK was even not the flag bearer of the unification trend. “old” European Union member states – Austria (2002), Belgium (2004), Germany (2002) and Finland (2009) – have since assigned the task of supervising the entire financial system to a single authority other than the central bank. In Ireland (2003) and the Czech and Slovak Republic (2006) the supervisory responsibilities were concentrated in the hands of the central bank. Five countries that are part of the EU enlargement process – Estonia (1999), Latvia (1998), Malta (2002), Hungary (2000) and Poland (2006) – also concentrated all supervisory powers in a single authority. Outside Europe unified agencies have been established in Colombia, Kazakhstan, Korea, Japan, Nicaragua and Rwanda. There are signs that the reform wave will continue, whether or not stimulated by the 2007-08 crisis. Before the crisis, Political authorities in Italy and Spain have expressed their intention to reorganize their supervisory architectures. In Italy, the Parliament discussed in 2005 the “hybrid” supervisory institutional setting, introduced a marginal reform of the antitrust responsibilities, reduced central bank involvement in supervision and shortened the Governor’s term of office. In Spain, the government announced in 2004 its intention to reform the architecture of financial supervision separating

Since then, developments at the policy level have gained momentum. On May 2009 the European Commission published its proposal for the structure of European financial supervision (based on the de Larosiere recommendations) which was adopted by ECOFIN on June 9 and by the European Council on June 18-19, 2009 (Commission of the European Communities 2009, Council of the European Union 2009). Last but not least, most eyes are fixated on the US. The shortcomings of the US supervisory framework were evident well before the 2007-08 financial crisis (Brown 2005), but the crisis underlined the failure and the obsolescence of the traditional argument for regulatory competition, which was most often used as the rationale to justify the US supervisory structure (Coffee 1995, Scott 1997). In March 2008, US Secretary Henry N. Paulson announced that his Department would undertake a comprehensive examination of the regulatory overlaps in the US financial supervision architecture (Department of the Treasury 2008). In March 2009 the new US Secretary Timothy Geithner called on lawmakers to enact changes to the financial regulation architectures. On June 2009 President Obama released a proposal for reform the US supervisory structure overseeing the financial industry (De-

Measuring financial regulation architectures and the role of the central banks : The financial supervision Herfindahl Hirschman index • 23

fsrforum • jaargang 12 • editie #4

Figure 1: The ﬁnancial supervision uniﬁcation index Figure 1: The financial supervision unification index

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partment of the Treasury 2009). Therefore the financial supervision architecture is in these years in a state of flux (Goodhart, 2007). Many countries have profoundly reformed the shape of their financial supervision regimes, while other countries refrained from drastic overhauls but nonetheless made some changes to the supervisory landscape (e.g. by merging two or three sectoral supervisors). The upshot of this wave of reforms is a much more diversified supervisory landscape than ever before in history. This paper reviews the changing face of the financial supervisory regimes introducing new indicators to measure the level of consolidation in supervision and the degree of the involvement of the central banks. We define supervision as the activity that implements and enforces regulation. While regulation refers to the rules that govern the conduct of the intermediaries, supervision is the monitoring practice that one or more public authorities undertake in order to ensure compliance with the regulatory framework (Barth et al. 2006). However, we use the term “regulatory” and “supervisory” authorities interchangeably, as is done in most of the literature. In general the focus of this paper is on micro-prudential supervision and consumer protection, while macro prudential supervision is usually carried out by the central bank and competition policy is in the hands of a specialized authority (Borio 2003, Kremers, Schoenmaker and Wierts 2003, Čihák and Podpiera 2007, Herrings and Carmassi 2008). The micro –prudential supervision is the general activity of safeguarding financial soundness at the level of individual financial firms, while macro-supervision is focused on monitoring the threats

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cludes 102 countries for the period 1998-2009. The review performed in Section Two allows us in Section Three to introduce new indicators to measure the level of consolidation in supervision and the degree of the involvement of the central banks, by giving a new application to the classic Herﬁndal – Hirschmann methodology. Section Five concludes.

2. Cross Country Comparisons of Financial Regulation Architectures: the Existing Indicators The recent literature on the economics of the financial regulation architectures zooms in on the following phenomenon: an increasing number of countries has shown a trend towards a certain degree of consolidation of powers, which in several cases has resulted in the establishment of unified regulators, different from the national central banks. Various studies (Barth, Nolle, Phumiwasana and Yago 2002, Arnone and Gambini 2007, Čihák and Podpiera 2007) claim that the key issues for supervision are (i)) whether there should be one or multiple supervisory authorities and (ii) whether and how the central bank should be involved in supervision. More importantly, these two crucial features of a supervisory regime seem to be related. The literature tried to go in depth in the analysis of the supervisory reforms measuring these key institutional variables (Masciandaro 2004, 2006, 2007 and 2008, Masciandaro and Quintyn 2009), i.e. the degree of consolidation in the actual supervisory regimes, as well as the central bank involvement in supervision itself. How can the degree of consolidation of financial regulation be measured? This is where the financial supervision unification index (FSU Index) comes in (Masciandaro 2004, 2006,

How can the degree of consolidation of financial regulation be measured? to financial stability that can arise from macro economic development and from developments within the financial system as a whole (Commission of the European Communities 2009). In particular we shed light on the reforms of the supervisory architecture. We classified as reforms those institutional changes implemented in a country which involved either the establishment of a new supervisory authority and/or the changing the powers of at least one of the already existing agencies. The paper is organized as follows. In Section Two we describe the current landscape of the financial supervision architecture and the correspondent role of the central bank in a cross-country perspective using the indicators so far proposed in the literature, drawing upon a database that in-

2007 and 2008) . This index was created through an analysis of which, and how many, authorities in each of the examined countries are empowered to supervise the three traditional sectors of financial activity: banking, securities markets and insurance. Let us consider a dataset consisting of an heterogeneous sample of 102 countries, belonging to all continents. To transform the qualitative information into quantitative indicators, a numerical value has been assigned to each regime, to highlight the number of the agencies involved. The rationale by which the values are assigned simply considers the concept of unification (consolidation) of supervisory powers: the greater the unification, the higher the index value. The index was built on the following scale: 7 = Single au-

24 • Measuring financial regulation architectures and the role of the central banks : The financial supervision Herfindahl Hirschman index

or 1). On the other, there are 31 countries (30 percent) that established a unified supervisor or that adopted the peaks model, with a high level of supervisory consolidation (the index takes the value 6 or 7). Now we can consider what role the central bank plays in the various national supervisory regimes. We use the index of the central bank’s involvement in financial supervision (Masciandaro 2004, 2006, 2007 and 2008, Masciandaro and Quintyn 2009): the Central Bank as Financial Authority Index (CBFA). For each country, and given the three traditional financial sectors (banking, securities and insurance), the CBFA index is equal to: 1 if the central bank is not assigned the main responsibility for banking supervision; 2 if the central bank has the main (or sole) responsibility for banking supervision; 3 if the central bank has responsibility in any two sectors; 4 if the central bank has responsibility in all three sectors. In evaluating the role of the central bank in banking supervision, we considered the fact that, whatever the supervision regime, the monetary authority has responsibility in pursuing macro financial stability. Therefore, we chose the relative role of the

thority for all three sectors (total number of supervisors=1); 5 = Single authority for the banking sector and securities markets (total number of supervisors=2); 3 = Single authority for the insurance sector and the securities markets, or for the insurance sector and the banking sector (total number of supervisors=2); 1 = Specialized authority for each sector (total number of supervisors=3). We assigned a value of 5 to the single supervisor for the banking sector and securities markets because of the predominant importance of banking intermediation and securities markets over insurance in every national ﬁnancial industry. It also interesting to note that, in the group of integrated supervisory agency countries, there seems to be a higher degree of integration between banking and securities supervision than between banking and insurance supervision; therefore, the degree of concentration of powers, ceteris paribus, is greater. This approach does not, however, take into account another qualitative characteristic: there are countries in which one sector is supervised by more than one authority. It is likely that the degree of concentration rises when there are two

The figure seems to depict a trade off between supervisory unification (or consolidation) and central bank involvement, notwithstanding eight outliers. central bank as a rule of thumb: we assign a greater value (2 instead of 1) if the central bank is the sole or the main authority responsible for banking supervision. Figure 2 shows the distribution of the CBFA Index. In the majority of countries in our sample (45) the central bank is the main bank supervisor (the Index is equal to 2), while in few countries (10) the central bank is involved in the overall financial supervision (the Index is equal to 4). The natural next step in our analysis of the supervisory regimes is to bring both indexes together. The result is shown in Figure 3 where we see that the two most frequent regimes are polarised: on the one hand, the Unified Supervisor regime (18 cases, red ball); on the other, the Central Bank Dominated Multiple Supervisors regime (31 cases, yellow ball). The figure seems to depict a trade off between supervi-

authorities in a given sector, one of which has other powers in a second sector. On the other hand, the degree of concentration falls when there are two authorities in a given sector, neither of which has other powers in a second sector. It would therefore seem advisable to include these aspects in evaluating the various national supervisory structures by modifying the index as follows: adding 1 if there is at least one sector in the country with two ﬁelds of authority, and one of these is also for at least one other sector; subtracting 1 if there is at least one sector in the country with two authorities assigned to its supervision, but neither of these authorities has responsibility for another sector; 0 elsewhere. Figure 1 shows the distribution of the FSU Index. On the one hand there are 42 countries ( 41 percent of the sample) with a low consolidation of supervision (the Index is equal to 0 Figure 3:Figure Financial supervision Regimes Regimes 3: Financial supervision 9 8 7 6 5 4 3 2 1 0 0

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komt eraan ga naar www.gaaan.nu

fsrforum • jaargang 12 • editie #4

sory uniﬁcation (or consolidation) and central bank involvement, notwithstanding eight outliers (green balls). The literature that pointed out this trade off (Masciandaro 2004, World Bank and IMF 2005) signalled an intriguing result: the national choices on how many agencies should be involved in regulation seems to be strictly dependent on the existing institutional position of the central bank. The degree of consolidation seems to be inversely related with the central bank’s involvement in supervision; this effect was labelled “central bank fragmentation effect” (CBFE). But is the CBFE still valid in our expanded sample? Looking at Figure 3 the answer to this question seems to be “yes”, although it needs to be a cautious one. In fact, while it seems to be true that the more common supervisory regimes are the two polarized ones, we also need to recognize that the number of outliers – i.e. regimes where both the consolidation and the central bank involvement increase – is greater compared with the previous studies on the issue. To perform a closer inspection of the data, we compare the features of the supervisory regimes across time, maintaining the country sample constant. We consider that the existence of

went from 2 to 4. These ﬁgures seem to indicate that only the consolidation process continued for sure, irrespective of the location of the uniﬁed powers. In any case we have to devote more attention to the current evolution of the CBFE.

3. Measuring Consolidation and Central bank Involvement: New Indicators Which are the shortcomings of the previous indexes? They has been designed to be consistent with the aim – measuring the degree of consolidation of the supervisory powers – using subjective weights in differentiating some cases – for example in giving more relevance to the supervision on both banking and securities industries – or in evaluating other situations – for example the degree of consolidation when there are at least two supervisors in one sector, or when a supervisor is in charge in more than one sector. So one type of improvement could be to reduce the role of the subjective weights. To do this, we propose here the Financial Supervision Herfindahl Hirschman (FSHH) Index. The FSHH is a measure of the level of consolidation of the supervisory powers that we derive by applying in a novel field the classical index proposed by Herfindahl and Hirschman (Hirschman 1964). In other words, we use the FSHH index to analyse the degree of supervisory consolidation for a large sample of countries. The robustness of the application of the FSHH to analyse the degree of concentration of power in financial supervision depends on the following three crucial hypotheses. First of all, it is possible to define both the geographical and institutional dimension of each supervisory market: therefore in each country (geographical dimension) we can define different sectors to be supervised (institutional dimension). In other words in every country each financial market forms a distinct market for supervision. So far it is still possible to identify both the geographical dimension - i.e. the existence of separate nations – and the institutional dimension – i.e. the existence of separate markets – notwithstanding the blurring of the traditional boundaries between banking, securities and insurance activities and the formation of large conglomerates diluted mainly the definition of the intermediaries (Masciandaro and Quintyn 2008).Then, in each sector we can define the distribution of the supervisory powers among different authorities – if more than one agency is present – and consequently their shares without ambiguity. For each sector, the degree of supervision consolidation falls the greater the number of authorities involved in monitoring activity. Secondly, we consider the supervision power as a whole, i.e. given different kinds of supervisory activity (banking supervision, securities markets supervision, insurance supervision) there is perfect substitutability among them in terms of supervisory power and/or supervisory skills. The supervisory power is a feature of each authority as agency, irrespective of where this supervisory power is exercised (agency dimen-

Figure 4: FSU & CBFA: VS 2009 Figure2006 4: FSU & CBFA: 2006 VS 2009 4 3.5 3 2.5 2 1.5 1 0.5 0 FSU2009

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the CBFE has been confirmed using a sample of 88 countries, with information updated during 2006 (Masciandaro 2008). Using the same country sample, from that time to today other reforms were implemented, producing changes both in the supervision consolidation and in the central bank involvement, and consequently in the overall shape of the regimes. Figure 4 shows the average levels of the FSU index and of the CBFA index in 2006 and in 2009: the level of consolidation is greater - from 2.88 to 3.34 - but the same is true for the degree of central bank involvement in supervision- from 1.76 to 1.84. Furthermore Figure 5 presents how many countries adopted each supervisory regimes in 2006 and in 2009, comparing the two situations. The number of countries which adopted the unified regime outside the central bank increased – from 13 to 18 – while the number of countries with central bank dominated regime went down – from 27 to 25 – but also the number of outliers – unified regimes inside the central bank – is larger – it Figure 5:Figure Supervision regimes:2009 vs 2006 vs 2006 5: Supervision regimes:2009 30 25 20

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R2-1

R2-0

R3-5

Regimes

28 • Measuring financial regulation architectures and the role of the central banks : The financial supervision Herfindahl Hirschman index

R3-3

R3-2

R3-1

R3-0

R4-7

R4-6

R4-2

Starting from the consolidation in supervision we analyse its trend according to country income and regional adherence.

sion). Therefore, in each country and for each authority, we can sum the share of the supervisory power it enjoys in one sector with the share it owns in another one (if any). For each authority the degree of supervisory power increases the greater the number of sectors over which that agency exercises monitoring responsibility. All three dimensions – geographical, institutional and agency – have both legal foundations and economic meaning. Thirdly, we prefer to adopt the HH Index rather than the classic Gini Index to emphasize that the overall number of authorities matters. In general the use of the HH index rather than other indices of concentration – as the entropy index - give more weight to the inﬂuence of the uniﬁed authorities, which is – as we stressed above - the main feature of the recent evolution in the shape of the supervisory regimes. We calculate the FSHH Index by summing up the squares of the supervisory shares of all the regulators of a country. For each country the FSHH Index is equal to:

Where m is the number of sectors where the authority i is present as supervisor and q is the number of authorities involved in supervision in each sector j. In other words if in one sector there is more than one authority, the supervisory power is equally divided among the incumbent supervisors. Let us give some examples. In the case of UK, we have one authority – the Financial Services Authority – for the three sectors. Then s= 1 and H = 1. In the case of Italy, we have three authorities – the Central Bank, the Securities Authority and the Insurance Authority – and two of them – the Central Bank and the Securities Authority – share supervision over two sectors (Banking market and Securities market). Therefore the three shares are respectively ; ; And the index HHis equal to In the case of Bosnia, we have ﬁve authorities, where three of them share supervision over the banking sector. Therefore the ﬁve shares are respectively:

Table 1: Supervisory Architectures in 102 countries: FSHH Index and CBSS Index (year: 2009) Countries

FSHHI

CBSSI

Countries

FSHHI

CBSSI

Countries

FSHHI

CBSSI

Countries

FSHHI

CBSSI

Albania

0.53

.33

El Salvador

0.53

Libya

0.53

.33

Saudi Arabia

0.53

.66

Algeria

0.31

.16

Estonia

Lithuania

0.30

.33

Singapore

Argentina

0.30

.33

Finland

Luxembourg

0.53

Slovak Republic 1

Australia

0.5

France

0.20

.27

Macedonia

0.30

.33

Slovenia

0.30

.33

Austria

0.68

.16

Georgia

Madagascar

South Africa

0.53

.33

Bahamas

0.30

.33

Germany

0.68

.16

Malaysia

0.53

.66

Spain

0.24

.33

Bahrain

Ghana

0.30

.33

Malta

Sri Lanka

0.30

.33

Belarus

0.30

.33

Greece

0.30

.33

Mauritius

0.53

.33

Sweden

Belgium

Guatemala

0.53

Mexico

0.53

Switzerland

Bolivia

0.45

Haiti

0.50

Moldova

0.53

.33

Tajikistan

0.53

.66

Bosnia

0.18

.16

Hungary

Montenegro

0.30

.33

Tanzania

0.30

.33

Botswana

0.53

.33

Iceland

Morocco

0.30

.33

Thailand

0.30

.33

Brazil

0.36

.49

India

0.30

.33

Namibia

0.53

.33

Trinidad Tobago 0.47

.66

Bulgaria

0.53

.33

Iran

0.30

.33

Netherlands

0.53

.50

Tunisia

.33

Cameroon

0.30

Ireland

New Zealand

0.30

.33

Turkey

0.30

Canada

0.48

Israel

0.36

.33

Nicaragua

Ukraine

0.30

.33

0.30

Chile

0.36

.33

Italy

0.30

.33

Norway

UAE

0.30

.33

China

0.30

Jamaica

0.53

.33

Pakistan

0.53

.33

Uganda

0.30

.33

Colombia

Japan

0.68

.16

Panama

0.30

Costa Rica

0.30

Jordan

0.30

.33

Peru

0.53

USA

0.09

.06

Croatia

0.53

.33

Kazakhstan

0.68

.16

Philippines

0.30

.33

Uruguay

Cyprus

0.30

.33

Kenya

0.30

.33

Poland

Venezuela

0.30

Czech Republic

Korea

Portugal

0.30

.33

Vietnam

0.30

.33

Denmark

Kyrgyzstan

0.30

.33

Romania

0.30

.33

Zimbabwe

0.30

.33

Ecuador

0.53

Latvia

Russia

0.30

.33

Egypt

0.30

.33

Lebanon

0.30

.33

Rwanda

Where is the share of supervisory power of the authority i and N is the total number of authorities. For each authority i, and given that in each country there are more sectors to supervise (three sectors in this paper: banking, securities and insurance) we use the following formula to calculate the shares: ; and

And the index HH is equal to: Finally, in the case of the United States, we count four federal authorities – FED, FDIC, OCC and OTS – in the banking sector, two federal authorities – SEC and CRTC - in the securities markets, one federal authority in the insurance sector. Furthermore we have to consider that for each of the three sectors

Measuring financial regulation architectures and the role of the central banks : The financial supervision Herfindahl Hirschman index • 29

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fsrforum • jaargang 12 • editie #4

Figure 6: FSHH Index by country Figure 6: FSHHgroup Index by country group

Figure 7: CBSS by country group Figure 7: CBSS by country group 0.3

0.8 0.7

0.25

0.6 0.2

0.5

0.15

0.4 0.3

0.1

0.2 0.05

0.1

0 ALL

OECD Country Groups

ALL

EUROPE

OECD Country Groups

EUROPE

Figure 8:Figure FSHH Index & CBSS Index (102Index Countries, 2) 8: FSHH Index & CBSS (102 Year Countries, Year 2)

we have also a state level of control (that we consider for each sector as one more authority). Therefore the shares are: ; ; and the index H is equal to 0.09. The four cases show how the FSHH Index can be used as an indicator that is (i) consistent with the previous one (using the FSU Index we have for UK, Italy, Bosnia and US respectively 7,2.0 and 0); (ii) at the same time more precise, giving the possibility to better differentiate country by country (using the FSU Index Bosnia and US have the same level of consolidation, (iii) more robust, given that there we exclude subjective weights and (iv) more easy to use and interpret, given that it applies a well-know methodology of measurement. From here on, it is easy to measure the degree of involvement of the central bank in the supervisory setting, by introducing the Central Bank Share in Supervision (CBSS) Index. We have just to take the share of the central bank in each country, which can go from 0 to 1 (as before n is the total number of sectors (three) and m is the number of sectors where the authority i is present as supervisor):

1.2 1 0.8 0.6 0.4 0.2 0

0.2

0.4

0.6 FSHH

0.8

1.2

Figure 9: FSHH9: Index CBSS Index (88Index Countries, Year 2009)Year 2009) Figure FSHH& Index & CBSS (88 Countries, 1.2 1 0.8 0.6 0.4 0.2

we can calculate both the FSHH Index and the CBSS Index for the 102 countries of our sample, with information updated to 2009 (Table 1), providing a new perspective on the evolution of the supervisory settings. Starting from the consolidation in supervision we analyse its trend according to country - income and regional adherence. Figure 6 provides this perspective: it shows that on average the degree of consolidation is greater if we take the industrial countries as a whole, rather than the European region ; these two groups score best with respect to the overall sample. With respect to the central bank involvement in supervision (Figure 7) , the industrial countries show on average a lower level, while the European countries demonstrate less central bank involvement in supervision than the overall sample. Bringing both indexes together, we can see that the CBFE still holds, if we consider the original sample with 88 countries (Figure 8), while it seems to disappear in the larger sample with 102 countries (Figure 9). The explanation is simple: in the overall sample the number of developing countries is greater, where the need to keep the central bank involved in the supervisory setting is greater (Quintyn and Taylor 2007). Therefore the CBFE can be weaker at least for two quite different reasons. In some countries the central bank, which manages the monetary policy, is deeply involved in supervision because the ﬁnancial deepening is still at its early stages. In other countries the central bankers can be more involved in supervision because the monetary responsibilities are not completely in their hands. In both cases the policymakers evaluated that the beneﬁts in having a central banker acting

0.2

0.4

0.6 FSHH Index

0.8

1.2

as supervisor are relatively greater than the costs. In any case there is a need to devote greater attention to the evolution of the CBFE effect as new reforms will be implemented.

5. Conclusions The worldwide wave of reforms in supervisory architectures that we have witnessed since the end of the 1990s leaves the interested bystander with a great number of questions regarding the key features of the emerging structure, their true determinants, and their effects on the performance of banking and financial industries. This paper has tried to provide an overview of the answers to some of these questions by reviewing the recent literature on this topic and adding some new evidence based on a new approach. This paper reviews the changing face of the financial supervisory regimes introducing new indicators to measure the level of consolidation in supervision and the degree of the involvement of the central banks. We show that the new Financial Supervision Herfindahl Hirschman Indexes are (i) consistent with the previous one, (ii) but at the same time more precise, (iii) more robust, given that there we exclude subjective weights and (iv) more easy to use and interpret, given that it applies a well-know methodology of measurement. The new indexes can be used in empirical studies on the determinants of the reform process and on the impact of the new architectures of financial supervision.

References On request

Measuring financial regulation architectures and the role of the central banks : The financial supervision Herfindahl Hirschman index • 31

fsrforum • jaargang 12 • editie #4

Towards a new European Financial Supervision Architecture Pablo Iglesias Rodríguez

In November 2008, while the world financial crisis was still evolving, the European Commission tasked a High Level Group chaired by Mr. Jacques de Larosière1 with proposing a new financial supervision architecture for European financial markets.2 The High Level Group published its report (the De Larosière Report)3 in February 2009, recommending the creation of a new European macroprudential supervisory body and the establishment of a new European micro-prudential supervisory system. These recommendations were meant to strengthen the European financial supervisory framework and increase the financial stability of the European Union.4

On May 27, 2009, the European Commission published a communication supporting the “main thrust” of the recommendations found in the De Larosière Report.5 Additionally, in their June meetings, both the Council of the European Union6 and the European Council7 indicated their support of the Communication’s main proposals. This consensus has prompted the movement towards a new European ﬁnancial supervision architecture. This paper explains the ongoing process of EU’s ﬁnancial supervision reform focusing in some accountability concerns.

II. The European Commission's Communication on European Financial Supervision The European Commission's Communication outlined a new ﬁnancial supervision structure based on two pillars: the European Systemic Risk Council (ESRC) and the European System of Financial Supervisors (ESFS).

A. The European Systemic Risk Council As envisioned by the Commission, the ESRC would be tasked with ensuring financial stability through macro-prudential supervision of the entire European financial system.8 Currently, there is no unified European system of macro-prudential supervision.9 Instead, such supervision is conducted at the member state level by a number of governmental bodies in different jurisdictions.10 The Commission’s proposal would lead to the establishment of a single independent body for the exercise of this function throughout the Union.11

Structure The ESRC would give a prominent role to Central Banks; indeed, its members would include the President of the European Central Bank as well as the Governors of the twenty-seven member states' Central Banks.12

Mission The ESRC’s primary mission would be to monitor potential threats to ﬁnancial stability arising from macroeconomic developments and to consider methods of preventing these threats from being realized.13 For this purpose, the ESRC would be entitled to issue early risk warnings and to give recommendations for appropriate remedies either of a general character or addressed to

The European Commission's Communication outlines a new ﬁnancial supervision structure based on two pillars: the European Systemic Risk

Council (ESRC) and the European System of Financial Supervisors (ESFS). 32 • Towards a new European Financial Supervision Architecture

speciﬁc European member states.14 However, neither the warnings nor the recommendations would be binding. Instead, the addressees of these instruments would be required to take action, either following the content of the instrument or explaining the reasons for non-compliance.15

Political Accountability The ESRC would be accountable to the Council of the European Union and the European Parliament through a mechanism of periodic reporting to both institutions.16

The proposed ESAs were the most important and innovative element of the ESFS. These three Authorities would replace the Lamfalussy Committees of Supervisors24 and would “have increased responsibilities, deﬁned legal powers and greater authority” than their predecessors.25 Assigned to monitor different sectors of the ﬁnancial industry, the new ESAs would be the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities Authority (ESA).26 Each of the ESAs would have a two tier structure with a

Both Councils would also limit the ESAs’ powers so that they cannot “impinge in any way on the fiscal responsibilities of Member States. B. The European System of Financial Supervisors The second pillar of the European Commission’s proposal was the creation of a European System of Financial Supervisors, conceived as a network incorporating member states’ financial supervisors and three new European Supervisory Authorities (ESAs).17 This set of supervisory institutions would conduct micro-prudential supervision at the European level.18 The ESFS was intended to solve some failures of the European system of micro-prudential supervision arising from several factors, including varying interpretations of regulatory texts and the diversity of regulatory powers among member states’ financial regulators.19

1. Structure The proposed ESFS had a complex three-level structure that involved the participation of member states’ supervisory authorities and the ESAs.20 The ﬁrst level consisted of a Steering Committee composed of representatives of the three new ESAs and of the European Commission that would “ensure mutual understanding, cooperation and consistent supervisory approaches between the” ESAs.21 Constituting the second level of the ESFS structure, the ESAs would undertake new and important tasks in the ﬁeld of regulation, supervision, and enforcement. Finally, as the third level of the ESFS regulatory scheme, national member states’ supervisors would conduct day-to-day supervision of individual entities,22 but, in doing so, they would be subject to the oversight of the ESAs.23

supervisory board and a management board. The supervisory board would consist of the ESA’s chairperson and the heads of the member states’ relevant supervisory authorities.27 The management board would consist of representatives from member states’ relevant supervisory authorities and from the European Commission.28

Pablo Iglesias-Rodriguez is a Research Fellow at the Montesquieu Institute -Faculty of Law, Maastricht University. He is a graduate from the University of Vigo, Spain - J.D. and M.Phil in Applied

2. Mission

Economics - and the European

The ESAs would be vested with both regulatory and supervisory powers. For example, while acting as regulators, they would develop technical standards and interpretative guidelines that would have to be taken into account by member states’ supervisors.29 In their role as supervisors, the ESAs would ensure the consistent application of European rules and facilitate dialogue, coordination, and the exchange of information between the competent authorities of the different member states.30 The proposed ESAs were particularly important because they possessed more power than their predecessor Lamfalussy Committees. According to the Commission, the technical standards developed by the ESAs would be binding.31 Furthermore, when disagreements would arise between member states’ supervisory authorities, the ESAs would be empowered to facilitate conciliation among them and, if necessary, resolve such conﬂicts with a binding decision.32 Finally, in cases in which there is need for urgent action, the ESAs “could also be empowered to adopt decisions directly applicable to ﬁnancial institutions in

University Institute, Florence M.Res and PhD in Law.

Towards a new European Financial Supervision Architecture • 33

fsrforum • jaargang 12 • editie #4

relation to requirements stemming from EU Regulations relating to the prudential supervision of ﬁnancial institutions and markets as well as the stability of the ﬁnancial system.”33

appeared that the ESAs would not be able to undertake certain actions, such as compelling member states to use their public money to shore up a bank in ﬁnancial trouble.

Political Accountability

IV. The European Commission’s Legislative Proposals

The ESAs would be fully accountable to the Council of European Union, the European Parliament, and the European Commission through periodic reports.34

After evaluating the Council of the European Union and European Council’s proposals and taking into consideration the answers of a public consultation on the Communication,39 the Commission published, in September 2009, some legislative proposals that follow, very much, the recommendations of both Councils. The legislative package includes several proposals, regarding, first, the specific regime of the new financial supervision authorities, and, second, some necessary amendments to be adopted in relation to other European Union’s legislative provisions, in order to enable the new authorities work. Concerning the first issue, the European Commission has proposed four Regulations and one Decision. The Proposals for Regulations of the European Parliament and of the Council develop the regime for the new European Systemic Risk Board (ESRB),40 the European Banking Authority (EBA),41 the European Insurance and Occupational Pensions Authority (EIOPA)42 and the European Securities and Markets Authority (ESMA).43 It is in respect of the ESRB that a Proposal for a Council Decision44 has been introduced with the purpose of granting some tasks and powers to the ECB within the ESRB’s structure.45

III. Council of the European Union and European Council’s Conclusions on the Communication While recognizing the importance of the Commission's proposals and endorsing the creation of a European Systemic Risk Board (ESRB)35 and a European System of Financial Supervisors, the Council of the European Union and the European Council reduced the scope of some of the European Commission’s proposals, partly to placate British concerns.36 The most important deviation from the European Commission's proposal concerned the powers of the ESAs. While the Council of the European Union and the European Council agreed that the ESAs should have the power to formulate binding standards and undertake binding actions,37 both Councils would also limit the ESAs’ powers so that they cannot “impinge in any way on the ﬁscal responsibilities of Member States.”38 Thus, given the views of both Councils, it

Notes 1*This is an extended version of a paper previously published in the Columbia Journal of European Law Online: Iglesias-Rodriguez, P. (2009): “Towards a New European Financial Supervision Architecture”, Columbia Journal of European Law Online, Vol. 16, No. 1 (available at http://ssrn.com/abstract=1518062). Commission Communication on European Financial Supervision, at 2, COM (2009) 252 final (May 27, 2009), available at http://ec.europa.eu/internal_market/finances/docs/committees/supervision/communication_may2009/C-2009_715_en.pdf (last visited Sept. 23, 2009) [hereinafter Communication]. 2 Press Release, José Manuel Durão Barroso, President of the European Comm’n, Preparation European Council (Oct. 8, 2008), available at http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/08/509 (last visited Sept. 23, 2009). 3 The de Larosière Group, The High-Level Group on Financial Supervision in the EU (Feb. 25, 2009), available at http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf (last visited Sept. 23, 2009). 4 See id. at 69 (stating that the mandate for the de Larosière group included making proposals regarding the following for the purpose of strengthening the EU financial system: (1) organization of European financial supervision; (2) cooperation in the field of financial stability and crisis management; and (3) cooperation of European financial supervisors with other jurisdictions). 5 See Communication, supra note 1. 6 Press Release, Council of the European Union, Council Conclusions on Strengthening EU Financial Supervision (June 9, 2009), available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ ecofin/108389.pdf (last visited Sept. 23, 2009) [hereinafter Council Conclusions]. 7Presidency Conclusions, Brussels European Council (July 10, 2009), available at http://www.consilium. europa.eu/uedocs/cms_data/docs/pressdata/en/ec/108622.pdf (last visited Sept. 23, 2009). 8Communication, supra note 1, at 5. In the United States of America, similar efforts have taken place in Congress. Republican Mike Castle (Delaware) has introduced legislation to create a systemic risk regulator. Financial System Stabilization and Reform Act of 2009, H.R. 1754, 111th Cong. (2009), available at http:// frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h1754ih.txt.pdf (last visited Sept. 23, 2009). This measure is the companion bill to a measure introduced by Republican Senator Susan Collins (Maine) that would lead to a new federal systemic risk regulator with the task of monitoring the financial markets. S.R. 664, 111th Cong. (2009), available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc. cgi?dbname= 111_cong_ bills&docid=f:s664is.txt.pdf (last visited Sept. 23, 2009). 9Communication, supra note 1, at 4. 10 See id. 11 Id. at 5.

34 • Towards a new European Financial Supervision Architecture

12 Id. at 6. Members of the ESRC board would also include the Chairpersons of the three new European Supervisory Authorities as well as a Member of the European Commission. Additionally, “each central bank governor should be accompanied by one senior representative of the national supervisory authorities as observer” though “[t]he representative accompanying the central bank governor could vary from meeting to meeting, depending on the issues to be discussed.” 13 Id. at 5. 14 Id. According to the Communication, “[t]hese warnings and/or recommendations would be channeled through the ECOFIN Council and/or the new European Supervisory Authorities.” ECOFIN refers to the Economic and Financial Ministers Council. 15 Id. (describing this “act or explain mechanism”). 16 Id. 17 Id. at 8 (“The new ESFS will be designed to . . . provide a system that is in line with the objective of a stable and single EU financial market for financial services – linking national supervisors into a strong Community network.”). 18 Id. at 3. 19 Id. at 8. 20 See generally id. at 12–14 (outlining the structure of the ESFS). 21 Id. at 12. 22 Id. at 9. 23 Id. at 9–11. 24 On July 17, 2000, the European Union’s Economic and Finance Ministers Council (ECOFIN) set up a Committee of Wise Men on the regulation of European securities markets and entrusted it with drafting a report containing proposals for securities markets regulation. In February 2001, the Committee published its final report: The Lamfalussy Report. Final Report of the Committee of Wise Men on the Regulation of European Securities Markets (Feb. 15, 2001), available at http://ec.europa.eu/internal_market/securities/ docs/lamfalussy/wisemen/final-report-wise-men_en.pdf [hereinafter Final Report]. The report recommended the creation of a Committee of Securities Regulators. Final Report, supra, at 28. In response, the European Commission established the Committee of European Securities Regulators in 2001. 2001 O.J. (L 191) 43, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2001:191:0043:0044:EN:P DF (last visited Sept. 29, 2009). In 2003, the Commission created two new Committees in the fields of Banking and Insurance/Occupational Pensions. 2004 O.J. (L 3) 28, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri= OJ:L:2004:003:0028:0029:EN:PDF (last visited Sept. 29, 2009) (establishing the Committee of European Banking Supervisors); 2004 O.J. (L 3) 30, available at http://eur-lex.europa.eu/LexU-

A new ﬁnancial supervision architecture in which European member states would face more difﬁculties in breaching European law and avoiding cooperation as the result of a stricter regime governing both compliance and disclosure.

Concerning the second issue, that of the amendments on other European Union’s legislative provisions, the European Commission has made a Proposal for an Omnibus Directive46, that would operate changes in several ﬁnancial services-related Directives, in order to ensure that the new proposed authorities can properly exercise their functions.47 When it comes to the issue of the accountability of the new supervisory bodies, the legislative proposals are much clearer and more speciﬁc than the Communication and provide some interesting elements for analysis. Notably, it will be important that, although being independent, the new supervisory authorities, vested with very important regulatory and supervisory powers, operate under a proper system of accountability towards the European Parliament in order to ensure that they are subject to a certain degree of democratic control. The Proposals for Regulations do indeed contain certain references to the accountability of the new authorities towards European institutions, especially, the European Parliament. Amongst the different accountability mechanisms, three of them can be underlined. First of all, with an ex-ante character, the European Parliament would participate in the appointments of relevant positions within the ESA’s, such as their Chairmans.48 Second, the European Parliament would exercise control over the budget of the ESA’s.49 Finally, with a mostly ex-post character, the new ESA’s would

riServ/LexUriServ.do?uri= OJ:L:2004:003:0030:0031:EN:PDF (last visited Sept. 23, 2009) (establishing the Committee of European Insurance and Occupational Pension Supervisors). 25 Communication, supra note 1, at 8–9. 26 Id. at 8. 27 Id. at 12. 28 Id. at 13. 29 Id. at 9 (providing, among other things, that the ESAs should have the power to establish a “single set of harmonized rules”). 30 Id. at 10–11. 31 Id. at 9. 32 Id. at 10. 33 Id. 34 Id. at 14. 35 The Council of the European Union and the European Council renamed the ESRC as the ESRB in their respective Conclusions. Council Conclusions, supra note 6, at 2 (Council of the European Union); Presidency Conclusions, supra note 7, at 7 (European Council). 36 EurActiv.com, EU Leaders Back Financial Supervision Overhaul, http://www.euractiv.com/en/financialservices/eu-leaders-back-financial-supervision-overhaul/article-183341?Ref=RSS (last visited Sept. 23, 2009) (discussing compromises made regarding the European Commission’s proposal at the European Council); see also EurActiv.com, Finance Ministers Fight Over Supervision Reform, http://www.euractiv. com/en/financial-services/finance-ministers-fight-supervision-reform/article-183050 (last visited Oct. 2, 2009) (describing the controversies that arose when the Economic and Financial Council (ECOFIN) met to discuss the proposed financial supervisory scheme). 37 Compare Council Conclusions, supra note 6, at 4–6 (discussing the Council of the European Union’s views on the powers of the ESAs), with Presidency Conclusions, supra note 7, at 8 (European Council indicating that the ESAs should have some binding powers). 38 Presidency Conclusions, supra note 7, at 8; accord Council Conclusions, supra note 6, at 4. 39 Consultation on Commission Communication of 27 May 2009 on European Financial Supervision (May 27, 2009), available at http://ec.europa.eu/internal_market/consultations/2009/fin_supervision_may_en. htm (last visited May 29, 2010). 40 Proposal for a Regulation of the European Parliament and of the Council on Community macro prudential oversight of the financial system and establishing a European Systemic Risk Board, 2009/0140 (COD), (Sept. 23, 2009), available at http://ec.europa.eu/internal_market/finances/docs/committees/su-

report to the European Parliament in relation to different issues, such as potential risks or vulnerabilities in their ﬁeld of supervision.50

V. Conclusions The publication of the De Larosière Report and the subsequent activity by the European Commission and the two Councils, has started a process of important reform in the field of European financial supervision. If the proposed regime becomes legislation, member states’ supervisory authorities would have the incentive to provide a more efficient supervisory cooperation due to the fact that, if acting otherwise, the new supervisory authorities, vested with stronger -sometimes binding- powers, may take action and force them to properly cooperate. It is precisely, the stronger binding character of the new supervisory bodies, that requires proper accountability and control mechanisms to be in place. The legislative proposals have included some precisions concerning this issue. However, as at May 2010, the legislative proposals are still being discussed at the European Parliament. It is the final regulatory regime for the supervisory authorities that will determine, very much, whether the proposed accountability regime properly addresses the nature and powers of the new supervisory bodies.

pervision/20090923/com2009_499_en.pdf (last visited May 29, 2010). 41 Proposal for a Regulation of the European Parliament and of the Council establishing a European Banking Authority, 2009/0142 (COD), (Sept. 23, 2009), available at http://ec.europa.eu/internal_market/finances/ docs/committees/supervision/20090923/com2009_501_en.pdf (last visited May 29, 2010). 42 Proposal for a Regulation of the European Parliament and of the Council establishing a European Insurance and Occupational Pensions Authority, 2009/0143 (COD), (Sept. 23, 2009), available at http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20090923/com2009_502_en.pdf (last visited May 29, 2010). 43 Proposal for a Regulation of the European Parliament and of the Council establishing a European Securities and Markets Authority, 2009/0144 (COD), (Sept. 23, 2009), available at http://ec.europa.eu/internal_ market/finances/docs/committees/supervision/20090923/com2009_503_en.pdf (last visited May 29, 2010). 44 Proposal for a Council Decision entrusting the European Central Bank with specific tasks concerning the functioning of the European Systemic Risk Board, 2009/0141 (AVC), (Sept. 23, 2009), available at http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20090923/com2009_500_en.pdf (last visited May 29, 2010). 45 For example, “The European Central Bank shall ensure the Secretariat and shall therefore provide analytical, statistical, logistical and administrative support to the ESRB.” (Proposal for a Council Decision, supra note 44, article 2). 46Proposal for a Directive of the European Parliament and of the Council Amending Directives 1998/26/EC, 2002/87/EC, 2003/6/EC, 2003/41/EC, 2003/71/EC, 2004/39/EC, 2004/109/EC, 2005/60/EC, 2006/48/EC, 2006/49/EC, and 2009/65/EC in respect of the powers of the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, 2009/0161 (COD), (Oct. 26, 2009), available at http://ec.europa.eu/internal_market/finances/docs/committees/supervision/20091026_576_en.pdf (last visited May 30, 2010). 47 For example, “in order for the ESFS to work effectively, changes to the sectoral legislation are necessary. The areas in which amendments are proposed fall broadly into the following categories: Definition of the appropriate scope of technical standards as an additional tool for supervisory convergence and with a view of developing a single rule book; To appropriately integrate the possibility for the authority to settle disagreements in a balanced way to those areas where common decision making processes already exist in sectoral legislation; and General amendments which are common to most sectoral legislation and necessary for the directives to operate in the context of new authorities for example, renaming the level 3 committees to the new authorities and ensuring the appropriate gateways for the exchange of information are present.” (Proposal for an Omnibus Directive, supra note 46, at 4). 48 See, for example, Proposal for a Regulation of a ESMA, supra note 43, article 33.2. 49 See id. article 50.9. 50 See id. article 17.1.

Towards a new European Financial Supervision Architecture • 35

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fsrforum • jaargang 12 • editie #4

Woord van de voorzitter

Peter James

Geachte leden, Tijdens dit schrijven is het begin juni en zijn veel studenten bezig om een mooie thesis te schrijven. Na het actieven weekend in Milaan heeft het bestuur samen met de actieven twee mooie dagen gehad. Hiermee hebben wij, van het XIIe bestuur, hopelijk duidelijk gemaakt dat wij de inzet van onze commissies enorm waarderen. Eind van het jaar zal er nog een borrel zijn om nog eenmaal op een passende wijze het jaar af te sluiten en het nieuwe bestuur aan hen voor te stellen. Zoals al meerdere malen aangekondigd gaat het kantoor van de FSR nu echt terug naar waar het hoort. Op de 14e verdieping zal het bestuur en de actieve leden herenigd worden met alle docenten die zich bezig houden op het vakgebied Finance & Accounting. Hierdoor zal ongetwijfeld de samenwerking met de docenten en secretariaten verbeterd worden. Dagelijks het Financieel Dagblad en Financial Times aanbieden aan onze leden en docenten zal dan ook efﬁciënter verlopen. Ook voor onze partners goed nieuws, want onze nieuwe website is online. Hierin is bewust veel aandacht besteed aan de carrièresite omdat dit een kans is voor studenten en bedrijven die beter benut diende te worden. Wanneer ik de verhalen van de deelnemers moet geloven is de ﬁnanciële reis naar Istanbul een succes geweest. Met Daniel Kizilirmak als bijzondere gids, omdat hij de Turkse taal machtig is, heeft de groep zich zeer soepel kunnen manoeuvreren door Istanbul en zijn een aantal interessante bedrijven bezocht, dit waren Roland Berger, ING, Turkiye Finans (Bank), Turkven (Private Equity), Anadolu Efes (Multinational) en de Istanbul Stock Exchange. Voor de deelnemers van het IRP kwam het vliegverkeer gelukkig op tijd op gang om de 20 studenten naar Mumbai te laten vertrekken. Na het voortraject was iedereen er klaar voor en achteraf zal het International Research Project voor veel studenten een bijzondere herinnering zijn wanneer zij terug kijken op hun studententijd. India is samen met China een land met ongekende potentie en het is mooi dat de deelnemers daar kunnen bestuderen hoe het er echt aan toe gaat in de professionele wereld in dit bijzondere land.

op het nieuwe collegejaar. Cruciaal in dat proces is de vorming van een goed bestuur en kwalitatief sterke commissieleden. In februari van dit jaar is er een acquisitieronde geweest in London om de relaties met onze partners te versterken. Komende zomermaanden zal dit ook weer opgepakt worden en zal de FSR zich verkopen als professionele organisatie die een sterke achterban vertegenwoordigd. Het twaalfde bestuur der FSR heeft er alle vertrouwen dat het nieuwe bestuur deze taak op zich neemt en er een succesvol jaar van maakt. Met vriendelijke groet, Peter James Voorzitter FSR Bestuur 2009-2010

Midden april was de tijd voor de ledenborrel waar iedereen gratis cocktails kon drinken in Pakhuis 15. De opkomst was goed, helaas was de kwaliteit van de cocktails niet het beste van Rotterdam, maar dat kon gelukkig de pret niet drukken. Ledenborrels is iets wat de FSR niet standaard aanbiedt, maar deze cocktail drink was zeker voor herhaling vatbaar. In mei stonden drie mooie evenementen op het programma. De Corporate Finance Competition was met 52 aanmeldingen wederom populair en blijkbaar kent de Rotterdamse student de waarde van dit evenement. In Hotel Duin en Kruidberg werden daarna cases behandeld die onder toeziend oog van de partners goed bestudeerd en afgehandeld werden. Op 17 mei was de bachelor accountancy dag. Dit evenement is voor elke student en vooral jongerejaars studenten die meer te weten willen komen over het vak Accountancy. In samenwerking met de EFR, STAR, MscFM en de traditionele Big-4 kantoren wordt in de Cruise Terminal de interessante kanten van het Accountancy vak uitgewerkt. Het derde evenement in mei is de Investment Banking Masterclass in samenwerking met Training The Street en Barclays Capital. Deze professionele training werd voor het eerst georganiseerd en is een groot succes gebleken! Het is juni en het nieuwe bestuur van de FRS zal zo spoedig mogelijk bekend worden gemaakt. De bulk van onze evenementen is geweest en de FSR kan zich voor gaan bereiden

Verenigingsnieuws • 37

fsrforum • jaargang 12 • editie #4

FSR Activiteitenverslag European Finance Tour 2010 Istanbul 'HHOQ HPHU V (X URSHD Q )LQ DQFH 7RXU

Maandag

Dinsdag

Na maanden van voorbereiding, verschillende in-housedagen bij de sponsoren Flowtraders, KPMG en NIBC en met een berg aan zin gingen we op maandag 29 april eindelijk het vliegtuig in naar Istanbul. Het vroege tijdstip waarop we afgesproken hadden om te verzamelen bleek voor enkelen ietwat aan de scherpe kant, maar zorgde niet voor problemen. Eenmaal aangekomen in Istanbul startte de week minder mooi dan velen van ons gehoopt hadden, het regende. Met de bus gingen we naar een van de drukste centra in Istanbul, Taksim, waar ons hotel gelegen was. Nadat iedereen zijn of haar spullen had gedropt kon de eerste verkenning van de stad beginnen. Voor een aantal begon deze ontdekkingsreis met een culinaire hap in een Turks kebabtentje, voor anderen was deze wat meer toeristisch. Na de eerste uurtjes doorgebracht te hebben in de Europese culturele hoofdstad van 2010 verzamelden we met de groep om te gaan eten. Voor het aanvangsdiner van wat een mooie en interessante week beloofde te worden hadden we in een mooi restaurant gereserveerd vanwaar we een 360 graden overzicht over de gehele stad hadden. Na een heerlijk diner hebben we met de gehele groep nog even geproost op de week die in het verschiet lag waarna we de rust gepakt hebben voor de bedrijfsbezoeken die op dinsdag voor de boeg lagen.

Dinsdag begonnen we met een bezoek aan Turkiye Finans, wat op loopafstand van het hotel lag. Het thema was hier Islamic banking en daar kregen we drie presentaties over. De presentaties werden gehouden in wat leek op hun boardroom en dit was zeker een goede manier om de week te beginnen. Het was vrij interactief en de hosts gingen goed om met de kritische vragen die werden gesteld door ons. Er was echt een passie bij deze mensen voor hun manier van zakendoen en dit maakte de discussie erg aangenaam. Buiten de gastvriendelijke ontvangst werden we overdonderd door een rijkelijke lunch met uitzicht op de Bosphorus.

38 • Verenigingsnieuws

Na Turkiye Finans hebben we een bezoek gebracht aan de Aya Soﬁa, om zo onze eerste toeristische moment van de week in te lassen. Daarna zijn we weer teruggegaan naar het hotel voor een presentatie van door de directeur van Roland Berger in Istanbul. Deze man was erg inspirerend en een goed spreker. Hij schetste een zeer genuanceerd beeld van Turkije en de presentatie ging eigenlijk vooral over business doen in Turkije. ‘s Avonds hebben we gedineerd in het exclusieve restaurant Reina wat ligt aan de Bosphorus, dit was echt een top diner en een mooie afsluiting van de dag.

Woensdag Op woensdagochtend stond Turkven op het programma. Bij dit Turkse private equity bedrijf, dat prachtig is gelegen aan de Bosphorus, zijn een 20-tal professionals werkzaam die constant opzoek zijn naar nieuwe investeringsmogelijkheden in Turkije en omgeving. Na verwelkomt te zijn met een glaasje Turkse thee, volgde een korte presentatie door de vice-president, meneer Izzet Talu, over de activiteiten van dit groeiende bedrijf. Hierna was er ruimte om vragen te stellen en tenslotte was er nog even de mogelijkheid om van het mooie uitzicht over het water te genieten, voordat het culturele programma begon. De eerste stop was de Maagdentoren, een toren gebouwd op wat rotsen in de Bosphorus. Wat de scheve toren is voor Pisa, de Eiffeltoren voor Parijs of het Colosseum voor Rome, dat is de Maagdentoren voor Istanbul. Dit piepkleine eilandje was in de vijfde eeuw voor Christus eerst tolpost, waarna het dienstdeed als mausoleum-, fort-, vuurtoren- en gevangeniseiland. Nu biedt het een mooi vergezicht over zowel het Aziatische als Europese deel van de stad. Nadat de magen goed gevuld waren tijdens de lunch, werd de weg vervolgd naar de Grote Bazaar, waar je gemakkelijk kan verdwalen door de ruim 4000 winkeltjes en honderden kleine weggetjes. Er is hier vanalles te vinden, van geurige specerijen tot handgeweven tapijten en van gouden sieraden tot kitsche lampen. Maar bij ons was het voornamelijk veel kijken-kijken-niet-kopen, zoals de Turken zeiden. Een paar straten verder op lag het volgende culturele hoogstandje; de Blauwe Moskee (vanwege de blauwe gloed die de duizenden Iznik-tegeltjes af geven). Dit immens grote bouwwerk met zes minaretten fungeert nog altijd als moskee, in tegenstelling tot de Aya Soﬁa. Buiten de gebedsdiensten mogen ook niet-moslims naar binnen en dan valt vooral het plafond op met zijn gedetailleerde versieringen. Het enige nadeel is dat er binnen, op z’n zachts gezegd, een enigzins muffe geur hangt, aangezien iedereen zijn schoenen moet uitdoen bij binnenkomst. Na het cultuur snuiven, volgde de maandelijkse business cocktail op het Nederlandse consulaat. Hier komen niet alleen Nederlandse expats die werkzaam zijn in Istanbul, maar ook Turken die veel zaken doen met Nederland en Nederlandse uitwisselingsstudenten. Dit biedt mensen de mogelijkheid om te netwerken, wat erg belangrijk is in het Turkse bedrijfsleven, onder het genot van een hapje en een drankje. Helaas ontbrak de Hollandse bitterbal, maar verder was het zeker geslaagd.

De cocktail werd vervolgd met een Turks diner, wat voornamelijk bestond uit kleine (koude) hapjes en natuurlijk mocht de ouzo (Turkse sterke drank) daarbij niet ontbreken. De avond werd afgesloten in een club, waar tot in de late uurtjes genoten werd van de drankjes en de muziek.

Donderdag Deze dag begon al vroeg aangezien we helemaal naar de andere kant van de stad moesten afreizen om naar de Efes brouwerij te gaan. Hier aangekomen kregen we eerst een corporate movie te zien waaruit bleek dat Efes niet alleen de grootste Turkse bierbrouwer is maar ook vele andere dranken maakt. Na het inleidende ﬁlmpje kregen we een rondleiding door de brouwerij. Tijdens de rondleiding werd ons alle details van het hele brouwproces verteld. Helaas was een proeverij niet inbegrepen, maar als oplossing hebben we in de avond zelf maar het initiatief genomen om de proef op de som te nemen. Na een snelle lunch moesten we weer helemaal naar de andere kant van de stad om het hoofdkantoor van ING Turkije te bezoeken. Na een introductie over de werkzaamheden van ING Turkije kregen we een case waarin ons werd gevraagd de verschillende afdelingen van ING te onderzoeken en een scenario voor de toekomst van deze afdelingen te maken. Onze ideeen werden later becommentarieerd door het hoofd van Retail Banking Turkije, die ook uit Nederland kwam en aan de Erasmus Universiteit had gestudeerd. Hij kon ons ook de nodige dingen vertellen over werken in Turkije als Nederlander. Na deze lange dag waren we wel toe aan een relax momentje en dus hadden we een zeer goed excuus voor een bezoek aan de Turkse hamam. Compleet ontspannen en weer opgeladen voor de laatste avond kwamen we een uur later weer naar buiten. Na een laat afscheidsdiner hebben we nog tot in de vroege uurtjes gefeest in een van de vele clubs die Istanbul rijk is.

Vrijdag Op de vrijdag ochtend stond al vroeg een bezoekje aan de Istanbul Stock Exchange (ISE) op de planning. Dit is de instantie die de handel in alle financiële producten in Turkije faciliteert en is daarom voor een finance student een interessante instantie om te bezoeken. Na een presentatie kregen we een rondleiding langs de plekken waar vroeger de fysieke handel nog plaatsvond die nu allemaal gedigitaliseerd is. Na het bezoek aan de ISE gingen we naar de Bogazici Universiteit waar een drietal professoren ons een korte inkijk in de Turkse economie en financiële markten zouden geven. De universiteit is gelegen op een zeer fraaie locatie, dicht aan de Bosporus en telt een groot aantal mooie panden. In geen enkel opzicht is de Bogazici Universiteit te vergelijken met

onze, qua architectuur wat onderdoende, universiteit. Als afsluiting van ons bezoek hebben we op het terras van de Alumni club in de volle zon genoten van een lekkere lunch, waarna we de taxi pakten naar het hotel. Na vijf mooie dagen zat de EFT 2010 naar Istanbul er dan toch echt bijna op. Al wat restte was een taxirit naar het vliegveld om aan het einde van de middag weer terug te keren naar ons kikkerlandje. Enigszins vermoeid, maar met een zeer voldaan gevoel kwamen we op vrijdag avond 2 april weer aan op Schiphol waarna ieder zijn eigen weg richting huis zocht. Voor alle deelnemers was de week een onvergetelijke ervaring waar iedereen nog lang aan terug zal denken. Uiteraard willen we de sponsoren Flowtraders, KPMG en NIBC bijzonder graag bedanken voor het mede mogelijk maken van de EFT 2010.

Verenigingsnieuws • 39

ONDERSCHEIDEN EN KANSEN GRIJPEN! COMMISSIELEDEN GEZOCHT Grijp jij deze kans? Heb je interesse of wil je meer weten? Kom dan langs op onze kamer (H14-06), bel ons op 010- 408 18 30 of mail naar intern@fsr.nu

fsrforum • jaargang 12 • editie #4

FSR Activiteitenoverzicht 2010/2011

In het academisch jaar 2010/2011 organiseert de FSR o.a. de volgende activiteiten: Accountancy dag Big 4 Cycle Corporate Finance Competition European Finance Tour Financial Business Cycle International Banking Cycle International Research Project Investment Banking Masterclass Klein Accountantskantoren Diner Multinational Battle Multinational Diner National Investment Competition Traders Trophy Young Financials Diner Verenigingsnieuws • 41

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fsrforum • jaargang 12 • editie #4

FSR Activiteitenverslag Spring Cocktail Drink

Ter voorbereiding op de zomer hebben de ﬁnanciële studenten van de Erasmus Universiteit Rotterdam een avond vol cocktails mogen mee maken. De FSR Spring Cocktail Drink op 15 april jl. in Pakhuis 15 was met recht een succes te noemen. Tussen de Mojito’s, Caiprinha’s en andere cocktails door hebben de leden niet alleen de FSR maar ook elkaar beter kunnen leren kennen. Wij hopen dat jullie hebben genoten van deze avond en hopen jullie snel weer te zien tijdens een volgende activiteit of borrel. Namens het XIIe bestuur, Tot de volgende keer!

Verenigingsnieuws • 43

fsrforum • jaargang 12 • editie #4

Activiteitenverslag FSR Investment Banking Masterclass Peter James en Bram Lips

Op 26 en 27 mei is voor het eerst de FSR Investment Banking Masterclass georganiseerd in samenwerking met Training The Street en Barclays Capital. Na weken van voorbereiding konden 40 studenten deelnemen aan een uniek evenement op de Erasmus Universiteit.

De twee-daagse masterclass bestond op dag 1 uit trainingen in Valuation en Financial Modelling verzorgd door Training The Street, een professioneel trainingsbedrijf. Zij leiden bij verschillende investment banks de nieuwe analisten op, geven cursussen op scholen als Harvard en INSEAD en hebben dit nu voor het eerst in Nederland gedaan op onze universiteit. Op dag 2 kwam Barclays Capital om kennis te maken met de deelnemende studenten en zichzelf en haar verschillende divisies te presenteren.

Woensdag 26 mei De deelnemers werden allemaal al om half negen verwacht voor het programma van Training The Street dat verzorgd werd door Zane Hurst. Training The Street had alle voorbereidingen getroffen en om precies negen uur, na de kofﬁe en thee, kon de training beginnen met de 40 aanwezige studenten.

Gedurende de eerste uren werd al snel duidelijk dat de informatie die de studenten deze dag zouden krijgen van grote waarde was, zeker als je een carrière in de ﬁnanciële wereld ambieert, wat de meeste van onze leden doen. Zane Hurst, de trainer gedurende de dag, heeft als voormalig bankier bij J.P. Morgan en Merrill Lynch veel ervaring opgedaan en kon daarmee vol enthousiasme vertellen over de praktijk van het waarderen van bedrijven. Als leidraad voor de training werd de deal tussen Cadbury en Kraft uitvoerig besproken. Grappig feit was dat op donderdag 27 mei op de voorpagina van de Financial Times een verwijzing stond naar deze deal. De vele modellen en methoden die tijdens de dag besproken zijn om een waarde te vinden voor een bedrijf maakten aan het einde van de 10 uur durende training een ding heel duidelijk: het waarderen van een bedrijf is geen exacte wetenschap, maar een ware kunst. Er is niet een methode die beter is dan alle anderen en dat maakt het vak van investment banker zo interessant. Aan het einde van de dag konden de studenten ietwat vermoeid, maar met een grote berg bagage voor dag 2 naar huis om de volgende dag weer fris te zijn voor Barclays Capital.

Donderdag 27 mei

TRAINING THE STREET 44 • Verenigingsnieuws

Om half tien werd iedereen weer ontvangen met kofﬁe en thee. Vanuit Barclays Capital waren gedurende de dag tien mensen aanwezig vanuit de Amsterdam en Londen ofﬁces, van de Sales en investment banking divisies, van analisten tot managing directors.

Als eerste begonnen de studenten aan de Sales exercise van Barclays Capital. In nederland is er vaak veel aandacht voor de corporate ﬁnance kant van investment banks, maar door middel van deze exercise konden de deelnemers eens goed kennis maken met een andere kant. In teams van zes of zeven moesten nieuwsberichten uit de Financial Times bestudeerd worden en gekeken worden wat de ontwikkelingen voor effect hebben op verschillende asset klassen. Dit klinkt misschien wat statisch en eenvoudig, maar de kritische vragen van de Sales professionals van BarCap maakten duidelijk dat de complexiteit van de ﬁnanciele markten groot is en dat scherp inzicht zeer belangrijk is. In de middag werd een M&A Case uitgewerkt. Het was erg leuk om te zien dat sommige groepen, in hun waardering, technieken gebruikten die de dag ervoor door Training The Street uitgelegd waren. Het moet ook gezegd worden dat de aanwezigen van Barclays Capital erg enthousiast meededen, iets wat de kwaliteit van de dag absoluut ten goede kwam. Het einde van deze dag en het evenement werd afgesloten door een presentatie van de Managing Director uit Amsterdam. Het enthousiasme dat Barclays Capital aanwezig zou zijn op de universiteit was groot onder de MBA studenten aan de RSM en dus waren zij ook uitgenodigd. Na een vlotte verhuizing naar een grote zaal kon iedereen rustig zitten en luisteren naar het verhaal. Ook dit deel van het programma was inhoudelijk sterk en vooral informatief met betrekking tot het globale perspectief van Barclays Capital en de carrière mogelijkheden binnen de bank. Als afsluiting was er een borrel waarbij studenten rustig nog konden praten met werknemers van Barclays Capital. Dit leidde tot leuke uitwisselingen en interessante gesprekken. Uiteindelijk was de dag om 19:00 echt klaar en konden we wederom terug kijken op een intensieve, maar zeer boeiende dag. De Investment Banking Masterclass is dit jaar een groot succes geweest. De deelnemers, Training The Street en Barclays Capital waren allemaal erg enthousiast over de inhoud van het evenement en de organisatie. Uiteraard hopen wij als FSR dit unieke en fantastische evenement in de komende jaren vast op de kalender te zetten en in de toekomst dus nog veel meer studenten de kans te bieden deel te nemen aan deze interessante en leerzame ervaring.

Verenigingsnieuws • 45

fsrforum • jaargang 12 • editie #4

FSR Oud-bestuurder

Floris Vossestein

Floris Vossestein was Commissaris Interne Betrekkingen in het Xe Bestuur van de FSR. Hij studeerde dit jaar af in economie en ging vanaf februari aan de slag als analyst corporate ﬁnance bij Kempen & Co. De lease-auto laat nog even op zich wachten want Floris rijdt elke dag met OV naar het kantoor in Amsterdam.

Wat is je mooiste moment in je FSR tijd?

Waar heb je gewerkt?

Het legendarische tweede lustrum. Ik voelde me een beetje Johan Vlemmix, of dat mijn functie Commissaris Feest was. Een eigen lustrumfeest organiseren was het absolute hoogtepunt. De locatie was de Catwalk, een establishment waar je doordeweeks niet dood gevonden wil worden, maar wat als je hem exclusief afhuurt een toptent is. Aan het begin van de avond, tijdens de opbouw, liep iemand nog rond om spiegeltjes op tafeltjes te leggen... De FSR had dat niet nodig, op een gegeven moment ging de baco-trein rijden en het feest ging door tot het volle ochtendgloren.

Dit is mijn eerste echte baan. Op enkele student-assistentschappen op de universiteit na.

Beste bestuursprestatie? Ondanks dat de Corporate Finance Competitition één van de mooiste activiteiten van de FSR was en is, waren de inschrijvingsaantallen enorm teruggelopen. Om dit event meer exposure te geven is er gekozen om het rustieke hotel op de Veluwe te verwisselen voor een tophotel in de Randstad. In 2008 is het evenement in Hotels van Oranje te Noordwijk gehouden. Het risico was dat er fors door de begroting zou worden gegaan. Uiteindelijk hebben we inderdaad verlies geleden op deze acitiviteit, maar is voor de daaropvolgende jaren weer een nieuwe trend gezet. Meer aanmeldingen, een toplocatie en deelnemende bedrijven die nog tevredener zijn.

Nog een ander mooi verhaal? welke? Het actievenweekend van 2008 ging naar Keulen. De eerste avond was de etenslocatie een traditionele Duitse Bierstube. Elke dinsdag brouwden zij hun eigen bier en je kon het bier in kleine fustjes bestellen. We hadden een speciaal arrangement besteld: Ein ganzes Spanferkel met onbeperkt bier. Een mooi gezicht om het speenvarken op een grote schaal door twee man binnengedragen te zien worden. Toevallig kwam later op de avond ook nog een Jagermeister promo-team binnen, met reageerbuisjes Jagermeister en iemand in een Hertenpak. Het was nog lang rumoerig in Keulen...

Welke functies heb je gehad? Afgelopen februari ben ik gestart als Analyst bij Kempen & Co op de Corporate Finance afdeling

Wat zijn je werkzaamheden? In één volzin het waarderen/structureren/begeleiden van fusies, overnames en kapitaalmarkttransacties. De afdeling is opgedeeld een aantal clusters. Kempen richt zich op small- en midcap bedrijven en heeft daarnaast een drietal sectoren waarin het leading is; “life sciences” , “utilities and cleantech” en “property” . Ik zit op het laatste team en focus op de Europese vastgoedmarkt.

Bij wat voor onderneming werk je? Kempen is een ambitieus bedrijf waar gedreven mensen werken. Er is geen facetime, maar wel een getting things done mentaliteit. In ons eigen café wordt elke vrijdag wel wat gedronken om vaak vervolgens nog even wat biertjes weg te tikken in “ De Blauwe Engel” . Binnen de teams wordt nog vaker afgesproken om wat gezelligs met elkaar te ondernemen. De open cultuur blijkt ook uit het feit dat we allemaal dicht bij elkaar zitten, ongeacht niveau. Je kan altijd bij elke Director binnenlopen. Als je deze goede sfeer ook wilt proeven, moet je maar eens nadenken over een zomerstage...

Wat heb je aan je FSRtijd gehad? Een welkome studievertraging... Maar bovenal de kennismaking met vijf schitterende personen. Met het hele (zestallige) bestuur proberen we nog geregeld af te spreken voor etentjes, borrels, house-warmings, erg leuk.

Verenigingsnieuws • 47

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Bij Financiën tel je meteen mee. Zeker als bedrijfseconoom. Ministerie Schrijver van Financiën

Als ambitieuze academicus kun je overal aan de slag. Ook bij de overheid. Daar moet je wel bewust voor kiezen, de publieke zaak moet je ter harte gaan. Bij Financiën vertaal je politieke keuzes in concreet beleid. Het gaat daarbij om heel veel geld, zo’n 160 miljard euro per jaar, een bedrag dat zo effectief en efﬁciënt mogelijk moet worden ingezet. Resultaatgericht en projectmatig werken is bij ons dan ook eerder regel dan uitzondering. Tegelijkertijd opereren we in de context van hectische politieke verhoudingen en maatschappelijke ontwikkelingen. Die dimensie maakt het werk extra spannend.

Vanaf dag één meedoen Bij het ministerie van Financiën draai je gelijk volledig mee. Zo is het heel gewoon dat je als bedrijfseconoom om de tafel zit met andere beleidsmedewerkers en externe partijen als aandeelhouders en CFO’s. Ook werk je mee aan het opstellen van de ﬁnancieringsplannen voor grote projecten. Het werk is dus deels beleidsmatig, deels projectmatig. Je kunt meewerken aan het verzekeren van exportkredieten. Of analyses maken van landenrisico’s. Wat is hun beleid en hoe zijn daar de economische vooruitzichten? Kortom, je krijgt vanaf de eerste werkdag de kans om jezelf te bewijzen. Om te laten zien dat je de verantwoordelijkheden aankunt. Uiteraard word je niet zomaar in het diepe gegooid. Er zijn altijd seniorcollega’s die je coachen of als mentor optreden.

Als bedrijfseconoom aan de slag Tegenwoordig verschilt de overheid helemaal niet zo veel van een bedrijf. Het gaat om het effectief en doelmatig inzetten van middelen. Alleen gaat het op ons ministerie om iets grotere bedragen: jaarlijks ruim 160 miljard. Bijna altijd is de vraag hoe we dat gemeenschapsgeld op de juiste manier gaan besteden, gezien de actuele maatschappelijke ontwikkelingen. Het antwoord vereist inzet, precisie en creativiteit, maar ook een scherp gevoel voor politieke verhoudingen.

Wat wil je doen? Bij het ministerie spelen bedrijfseconomen een belangrijke rol. Wat jij precies gaat doen, hangt natuurlijk af van je achtergrond en belangstelling. Je kunt denken aan: het uitgeven van staatsaandelen, het initiëren en stimuleren van publiek-private samenwerkingsverbanden, het risicomanagement van de staatsschuld, het optimaliseren van bedrijfsvoeringprocessen, het verbeteren van het risicomanagement, het uitvoeren van audits en het meewerken aan de Miljoenennota.

Zo blijf je in beweging Bij het ministerie van Financiën tel je meteen mee. Maar het is natuurlijk belangrijk dat je je ook snel verder ontwikkelt. Daarbij krijg je hulp in de vorm van allerlei individuele en collectieve opleidingsprogramma’s. Financiën is voor bedrijfseconomen een plek met heel veel doorgroeimogelijkheden. We kennen een roulatiebeleid, zodat je steeds nieuwe dingen leert en je grenzen verlegt. Zowel op nationaal als op internationaal niveau. Hoe ver je komt, is ook een kwestie van ambitie en talent.

Studentendag Elk jaar organiseert het ministerie van Financiën de Studentendag voor academici in de laatste fase van hun studie. Tijdens deze dag krijg je een unieke kans om het ministerie van binnenuit te leren kennen. Je draait een dag mee en wordt door enthousiaste medewerkers begeleid. Meer informatie op www.studentendag.nl

Meer informatie Wil je meer weten over werken bij het ministerie van Financiën? Kijk voor informatie over vacatures, stagemogelijkheden en onze recruitmentactiviteiten op www.minﬁn.nl. Je kunt ook meteen solliciteren via recruitment@minﬁn.nl. Bellen kan natuurlijk ook naar (070) 342 89 69 of (070) 342 73 17.

48 • Bedrijfspresentatie Ministerie van Financiën

Het Agentschap van het ministerie van Financiën is vol dynamiek Gedegen kennis opbouwen op ﬁnancieel economisch gebied dat wil Tamim Chébti (27). Tijdens zijn tweejarige traineeship bij het Agentschap wordt kennis van beleid en ervaring in de praktijk om de zes maanden afgewisseld. Tussendoor kan hij ook stage lopen bij diverse banken. ‘Ik heb eerst Internationaal Business in Utrecht gestudeerd, vervolgens heb ik in 2007 aan de Erasmus Universiteit in Rotterdam mijn studie Bedrijfskunde voltooid. Ik heb me tijdens mijn studie ook internationaal georiënteerd met diverse studies en stages in het buitenland. Maar tijdens mijn studie Bedrijfskunde ontdekte ik een grote interesse. Ik wilde me volledig verdiepen in de ﬁnanciële sector. Financiële markten zijn continue in beweging. Via de Studentendag bij het ministerie van Financiën ben ik bij het Agentschap terechtgekomen. Het spreekt me aan om op de scheidslijn van de publieke en private sector te werken en een actief onderdeel van de markt uit te maken. Ik besloot te solliciteren en ben aangenomen voor de functie Financial Markets Trainee.

Het spreekt me aan om op de scheidslijn van de

publieke en private sector te werken en een actief onderdeel van de markt uit te maken.

De ﬁnanciering van de Nederlandse staatsschuld van 220 miljard valt primair onder de verantwoordelijkheid van het Agentschap. De Agent, directeur van het agentschap, rapporteert aan de minister van Financiën. Ik houd me op de huidige afdeling bezig met cashmanagement. Volgens het verdrag van Maastricht mag de Staat dagelijks een saldo tussen de nul en vijftig miljoen euro bij De Nederlandsche Bank hebben staan. Als er een overschot is, dan zetten we geld uit, bij een tekort moeten we juist geld lenen. Tijdens de kredietcrisis toen de Staat in één week meer dan 20 miljard nodig had om de Fortis deal te ﬁnancieren, hebben wij dat geld opgehaald. Ik heb het goed naar mijn zin, want het zijn turbulente en leerzame tijden. Je weet vaak ’s ochtends niet wat er in de markt gaat gebeuren. Rustig is het al tijden niet meer.’

Bedrijfspresentatie Ministerie van Financiën • 49

fsrforum • jaargang 12 • editie #4

FSR Activiteitenverslag Actievenweekend Milaan

50 • Verenigingsnieuws

Verenigingsnieuws â&#x20AC;˘ 51

FSR Alumnivereniging Financieel toezicht

Waarde lezer, In deze editie van het FSR Forum staat financieel toezicht centraal. Een actueel onderwerp in de tijden van kredietcrisis en groeiende zorg over de financiële situatie in de zuidelijke landen in de eurozone. In Nederland is een onderzoekscommissie van de Tweede Kamer, de commissie De Wit (genoemd naar de voorzitter SP Kamerlid Jan de Wit) ingesteld. De commissie doet onderzoek naar de oorzaak van de problemen in het financiële stelsel en de aanpak daarvan door het kabinet. Op 10 mei presenteerde de commissie de resultaten over het eerste gedeelte van het onderzoek, de oorzaak van de problemen. In totaal heeft de commissie 27 aanbevelingen gedaan. Zo vind De Wit met zijn commissiegenoten dat het toezicht op de financiële sector verder verscherpt moet worden. De Nederlandse Vereniging van Banken (NVB) heeft vanaf 1 januari 2010 een eerste aanzet gegeven met de Code Banken. De code is een vorm van zelfregulering, tot stand gekomen op basis van het rapport van de Adviescommissie Toekomst Banken (Commissie Maas). Het zwaartepunt van de principes in deze bankspecifieke code richt zich op versterking van de governance binnen banken, risicomanagement, audit en beloningsbeleid. De commissie beveelt aan dat niet alleen banken maar ook andere financiële instellingen, zoals verzekeringsmaatschappijen en pensioenfondsen. Bovendien moet er een Europese toezichthouder komen voor de financiële sector. Een vraag die bij mij opkwam bij het lezen van deze bevindingen en aanbevelingen was: zouden deze 27 aanbevelingen de oplossing kunnen bieden? Nooit meer een financiële crisis? Gelukkig heeft de commissie De Wit al deels antwoord gegeven op deze vraag. In het rapport stelt de commissie zich namelijk hardop de vraag of de financiële sector de discipline heeft om niet alleen naar de letter, maar ook naar de geest van de Code Banken te gaan handelen. En als ik heel eerlijk ben is dat nou niet direct waar die slimme bankiers om bekend staan. Over een andere belangrijke vraag, wie is de hoofdschuldige voor de crisis?, neemt de commissie helaas geen duidelijk standpunt in, zowel de banken, de overheid en de toezichthouders krijgen de zwarte piet toegespeeld. Toezichthouders zijn in de ogen van de commissie De Wit derhalve zowel een oorzaak van, als een mogelijke oplossing voor een probleem dat ons de komende weken, maanden en mogelijk jaren waarschijnlijk nog bezig zal houden. Ik ben benieuwd! Namens het VIe Alumnibestuur Met vriendelijke groet, Rex Neijtzell de Wilde Voorzitter FSR Alumnivereniging

52 • Verenigingsnieuws

of heb jij* een beter idee om alle facetten van de ﬁnanciële wereld te ontdekken? &INANCIAL 4RAINEESHIP www.werkenbijpwc.nl !SSURANCE s 4AX s !DVISORY

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