This is essential, because large banks usually operate in more than one country. The failure of the Franco-Belgian bank Dexia in 2011 is a classic case in which banking supervision with a cross-border focus could have improved crisis management. Another example is Germany’s Hypo Real Estate, which folded in 2009.
Third, shifting banking supervision from the national to the European level adds a layer of separation between supervisors and the banks they supervise. This will prevent domestic supervisors from handling their banks with kid gloves out of national interest.