While large European financial institutions are cross-border in nature, the supervisory system in Europe clearly is not. Financial supervision remains the remit of national member states. Differences in financial supervisors’ national mandates threaten the level playing field in Europe. And because financial supervisors operate under strictly national incentives, information-sharing and cooperation between them has not been sufficient.
Up to now, macro-prudential supervision, which is aimed at limiting the frequency and severity of financial distress, has not only been too weak in Europe, but also too decentralised. This stands in contrast with other policy areas, in particular monetary policy, where decision-making is centralised and based on a much stricter analytical footing. Finally, most European central banks have published macro-prudential risk warnings.