According to a study by the ECB, 43 banks and banking groups are active in more than three EU countries.1 Only some years ago, cross-border banking M&A in the EU was only taking place between small countries or vis-à-vis the new member states – Austrian banks’ expansion into some Central European countries is a good example of this phenomenon. Now this is changing. Today French, Spanish, German and UK banks are all trying to build European platforms. For instance, as you all know, Spanish Grupo Santander now owns the fifth biggest UK bank, and Barclays of UK owns the sixth largest private sector bank in Spain. And this spring, we are all witnessing the takeover battles, started by foreign bids, for two Italian banks. …is good news for the economy but raises challenges to supervisors and central banks At the Riksbank, we welcome this development. We believe financial market integration is strongly positive for economic efficiency and hence for growth and welfare in the EU. But we admit that integration presents some complex and multifaceted challenges to us as authorities. At the outset, integration is obviously hindered by differences in language, business culture and national laws and regulations. But once it happens, integration tends to follow the logic of business, not the “logic” of country border or national law. For instance, for financial groups which are expanding cross-border a part of the synergies is derived from centralising functions.
Another practical example on how to reduce the regulatory burden would be for countries to agree on a common and centralised reporting standard for large cross-border groups. The home-host relationship… The home-host relationship is the underlying theme running through a number of issues in the regulatory debate. Broadly speaking, the home-host relationship is about how we should divide tasks, powers and responsibility between different countries when it comes to supervising, monitoring and, in the worst case, sorting out financial institutions in distress. Formally, the home-host relationship only refers to the division of responsibility between supervisors, which currently is based on the principle of home country control. The home country is the country where the bank is licensed. For a bank, this means that the home country is responsible for supervising the bank and its foreign branches. The home country’s deposit insurance also covers its banks’ foreign branches. In the case of a group, it means that the home country is also responsible for supervising the entire group on a consolidated basis, while the host countries are responsible for their respective subsidiary banks and deposits. At this very moment, the CEBS is drafting the so-called home-host paper giving guidance on how the home-host supervisory relationship should be arranged given existing EU legislation. Even if there are no legally binding rules regarding the relationship between countries in crisis management or crisis resolution, these aspects of regulatory involvement have borrowed the terminology of the supervisory home-host concept.