European Banking Union Research Articles

Integration level within the European Union banking sector

Purpose What is the current level of integration of the retail and wholesale banking sectors in the European Union (EU) countries, and what are the main factors and challenges affecting it? What are the solutions to promote the integration and convergence of the retail banking sector in the European countries?. Design/methodology/approach Evaluated the level of integration of the banking sector, focusing on the EU banking context, retail banking especially. The paper will adopt a comprehensive and multidimensional approach, considering different criteria and indicators of integration, such as price, quantity and information, as well as different segments and dimensions of the EU banking sector, such as wholesale and retail, assets and liabilities, products, services, price indicators and institutions and markets. Findings It reveals that while significant integration has been realized in domains like the money market and wholesale banking, it is less pronounced in the retail banking and capital markets. Originality/value This paper is an original research. The entire study belongs to me.

Board gender equality and ESG performance. Evidence from European banking sector

PurposeThe purpose of this paper is to investigate the relationship between board gender equality and environmental, social and governance (ESG) performance in the European banking sector. The study examines whether and how the presence of women on the board of directors (BoD) influences ESG dimensions.Design/methodology/approachThe authors analyzed a sample of 72 European Union banks for the period 2015–2021 and developed an econometric model applying unbalanced panel data regression with firm fixed effects and controls per year. To test the research hypotheses, the authors considered gender equality in terms of female participation on the BoD and measured ESG dimensions by using the ESG score provided by Refinitiv.FindingsThe findings suggest a significant positive relationship between the number of women on BoD and the ESG performance of European banks only up to a certain threshold of female directors (at least three women). The study also explores how the proportion of women on BoD influences the individual ESG pillars. The results show that the percentage of female directors has a positive and statistically significant impact on the social dimension of the ESG framework.Research limitations/implicationsThe investigation is highly relevant to investors considering ESG issues in their decision-making process. The overall findings support policymakers and regulators on how to improve ESG performance through the design and the application of corporate governance (CG) mechanisms. From a managerial perspective, the study suggests that managers and CEOs should focus their efforts on establishing the right gender combination of directors on bank BoDs.Originality/valueThis paper offers an in-depth examination of the CG practices of banks, and it attempts to bridge the gap in prior literature on the determinants of ESG issues in the European banking industry. To the best of the authors’ knowledge, this study is the first that investigates the relationship between the representation of women on BoDs and the ESG dimensions measured by the Refinitiv Eikon score. The use of critical mass theory adds a fresh perspective to the literature on ESG in Europe since the influence of board gender diversity on ESG performance of the European banks is still unaccounted for. This study addresses this pressing research issue drawing on resource dependence, agency and legitimacy theories.

Operational risk disclosure quality and national culture: Evidence from the E.U. Banking industry

In this study, we analyze the association between national culture and voluntary operational risk disclosure quality in the European Union banking industry. Complementarily, we assess whether the potential impact of culture differs between global banks and banks with low levels of internationalization. Finally, we consider the impact of the formal institutional environment. Our sample covers 15 countries, and we construct a disclosure score based on hand-collected data. Three main results were obtained. First, banks in societies that score higher on individualism or long-term orientation and lower on uncertainty avoidance or power distance have better disclosures. Second, in global banks, where executive board members interact with stakeholders from different cultures, these associations are absent. Finally, contextual factors also affect the association between culture and disclosure, but this substitution effect is weaker than the one we document for globalization. Our results are robust to instrumental variables estimation, the use of the GLOBE project’s cultural dimensions, and a subsample analysis of civil code law countries.

Board demographics and performance: evidence from European Union banks

Board demographics and performance: evidence from European Union banks

Board Response to Transnational Regulation on Corporate Governance: A Case Study on EU Banking Regulation

How does a board of directors respond to stringent transnational regulations on corporate governance? We explore this question in a case study that includes interviews with key governance actors of a bank dealing with regulatory changes in the European Union (EU) initiated in 2010 in response to the financial crisis of 2007–2008. Our findings suggest that transnational regulations introduced a conflicting prescription to the directors, who were caught between two needs: existing local governance practices and transnational regulatory compliance. Contributing to the international corporate governance research, our findings corroborate the resistance to transnational regulations and the distrust attributable to boards of directors’ role struggles and the invasive accountability mechanisms introduced by such regulations. We, therefore, contribute to the ongoing discussion on how the conflicting layers of corporate governance—local versus global—and how the discontinuities between competing existing practices and the prescriptions of transnational regulations can provoke micro-resistance.

The impact of the single supervisory mechanism on Eurozone banking: the assessment of trends in efficiency and frontier position

ABSTRACT The Single Supervisory Mechanism (SSM) was implemented as a first step towards a Banking Union in November 2014. This paper investigates the impact of the SSM on Eurozone banks’ efficiency and position of best-practice frontier. It is based on a balanced panel analysis of 931 European bank-year observations from 2011 to 2017 (133 banks, seven years). The study uses Data Envelopment Analysis and a difference-in-differences approach to explore the evolution of banking performance. We found that the SSM had a negative impact on the efficiency levels of Eurozone banks, particularly in the year after the introduction of the mechanism. Additionally, we observed that the frontier formed by non-Eurozone European Union banks is more productive than the frontier of Eurozone banks in all the years analysed. Both efficiency and frontier position show evidence of a recovery trend in more recent years for both groups. We also found that while Equity-to-Asset Ratio, Return on Average Assets and Gross Domestic Product per capita positively impacted banks’ efficiency, domestic credit provided by banks expressed as %GDP had a negative impact on efficiency.

The Evolution and Challenges of the EU’s Fiscal Policy Framework: A Critical Analysis

The European Union’s fiscal policy framework has undergone significant evolution and faced numerous challenges since the establishment of the Economic and Monetary Union (EMU). This essay critically analyzes the development, reforms, and critiques of the EU’s fiscal rules, particularly in light of the sovereign debt crisis and the recent pandemic. Initially, the EMU focused little on fiscal integration, but the subsequent two decades have been marked by expansion and crisis management, with key reforms such as the ‘Six Pack,’ the Treaty on Stability, Coordination and Governance (TSCG), and the ‘Two Pack’ aiming to stabilize the EMU and prevent unsustainable public finances. Despite these efforts, the EU’s fiscal rules have been criticized for their complexity, rigidity, and lack of enforcement, leading to ineffective fiscal management. The Maastricht Treaty’s fiscal cap and public debt target, operationalized through the Stability and Growth Pact (SGP) since 1999, have been particularly scrutinized. Current proposals for reforming the EU’s fiscal framework are seen as insufficiently simple, flexible, and effective, potentially leading to unintended negative consequences. The essay also examines the role of the European Banking Union (EBU) in the fiscal policy framework, established in response to the financial crisis and designed to ensure the soundness of Europe’s financial sector. The EBU, with its Single Supervisory Mechanism (SSM) and Single Resolution Mechanism (SRM), plays a critical role in preventing banking sector problems from causing financial distress in EU countries.

Competition and Stability in the European Union Banking Sector

This paper empirically tests the two competing hypotheses regarding the relationship between competition and stability: the competition-fragility hypothesis and the competition-stability hypothesis. The banking sector stability is proxied with the estimated Z-score, which provides a measure of overall bank stability. Two different measures are used to represent bank competition: the Herfindahl–Hirschman Index (a specific measure of market concentration) and the Boone indicator (which measures competition from an efficiency perspective). Using data from the Moody’s Analytics BankFocus database and the World Bank Global Financial Development database, the paper applies panel estimations to a relatively large panel, including 784 relevant banks from all 27 European Union countries, between 2006 and 2021. The main findings overall confirm the validity of the competition-fragility hypothesis. Moreover, the results obtained for two specific European Union countries, Germany and France, highlight some specific differences, particularly regarding the effects of bank market concentration and the responses to the crises that affected the European Union banking institutions over the considered period. The findings of this paper reinforce the relevance of the policy maker’s role and indicate, for example, that bank market competition in the European Union is probably already sufficiently high and should not be reinforced, as overall, the increase in bank competition seems detrimental to the stability of European Union banking institutions.

Dynamiek van naoorlogse private schuldgroei in Nederland

The level of private debt in the Netherlands is exceptional in both historical and comparative terms. High debt ratios inhibit economic growth, induce financial fragility and lead to deeper and more tenacious recessions. Facilitated by fiat money creation, private debt in the modern economy mainly consists of bank credit. Internationally shared causes of the rise in bank money are the decline in cash payments, tax deductions and a narrowed focus in monetary policy. In the Dutch case, liberalized mortgages, the side effects of the funded pension system and the strong concentration of the banking system add to these. It is the confluence of these factors that has made Dutch debt growth since the 1970s exceptional. Some of these, notably the deduction of interest on mortgages and financial deregulation, have dominated the debate on this subject and hence are part of public perception. However, this does not apply to other mechanisms mentioned, such as the role of bank money and that of bank concentration. As a result, policy analysis of the debt problem thus far has been selective. The lessons of Dutch financial development are of importance to the realization of the European banking union and to monetary policy and taxation in the euro area. Our analysis demonstrates the usefulness of applied history.

EU Banks’ Accounting Policy Decisions and Market Influence

This study investigates the impact that market discipline mechanisms have on European Union (EU) banks’ accounting policy decisions. We investigate the association between the level of loan loss provisions (LLPs) with earnings before provisions and taxes when depositors appear to withdraw their funds and demand higher deposit rates. We examine whether market discipline motivates banks to adjust earnings through accounting accruals. Empirical findings suggest that the demand for higher deposit rates limits management’s accounting discretion. By contrast, withdrawals appear to encourage managers to use income smoothing via LLPs. The observed associations appear to be conditioned by banks’ systemic importance and capital adequacy levels.

Business model contributions to bank profit performance: A machine learning approach

This paper examines the relation between bank profit performance and business models, using a machine learning–based approach. The analysis contributes to the literature on this relation by considering the bank portfolio’s ability to yield profits as the identification criterion of strategic profiles and by including all the components of the business model simultaneously in the identification process. Our research strategy is applied to the European Union banking system from 1997 to 2021. The paper’s primary finding indicates that specialization seems to be a strategy that results in banks adopting business profiles with better profit performance, particularly if the banks specialize in the standard retail-oriented model.

Bank business models, size, and profitability

To examine the relation between profitability and business models (BMs) across bank sizes, the paper proposes a research strategy based on machine learning techniques. This strategy allows for analyzing whether size and profit performance underlie BM heterogeneity, with BM identification being based on how the components of the bank portfolio contribute to profitability. The empirical exercise focuses on the European Union banking system. Our results suggest that banks with analogous levels of performance and different sizes share strategic features. Additionally, high capital ratios seem compatible with high profitability if banks, relative to their size peers, adopt a standard retail BM.

A Regulatory Perspective on the Actual Challenges for the European Deposit Insurance Scheme

The European financial regulation is evolving with new and specific forms of cooperation for the member states, enhancing concepts and innovative rule of law, particularly featuring the actual level of harmonization. This paper investigates the European deposit insurance scheme, in the context of the European law development, in reply to the current economic and social challenges and in accordance with the principles of the free market. The methods of research include a theoretical investigation of the relevant literature, a comparison of the proposed regulation and regulation in force, synthesis, and deduction. The research results are based on the assessment of the progress of negotiation in building efficient mechanisms to stimulate money saving conduct for individuals and legal persons, globally and within the European Union. Acknowledging the status of the three pillars of the European banking union legislative package, the member states have unanimously agreed that the framework established by the Directive from 2014 needed a bracing approach, to ensure more protection and to support enhanced financial integration. The analysis carried out showed the importance of the European deposit insurance scheme in the context of the present global challenges. The money saving conduct was strongly influenced by the regulation for the deposit guarantee mechanism, while the tight estimated agenda for the final regulatory proposal asks for ingenious cooperation to reach a consensus within members states. The research showed the imperative to build common legislation for the member states and a future direction of investigation to evaluate the effects of the gap between the domestic regulation and milestone generated by the European directives in each state legal framework.

Communications of sustainability practices in the banking sector: Evidence from cross‐country analysis

AbstractThis paper aims to empirically explore the content and the extent of sustainability disclosure in the banking sector in the European Union (EU) and the United States. We empirically examine the implications of institutional theory within the banking sector context and provide classification of our sampled banks. In addition, a tailored sustainability index has been developed and content analysis has been employed to examine the current sustainability disclosure in the EU and the US banking sector. Using a sample of 483 report‐year observations, the results reveal that the EU banks have carried out more sustainability disclosure compared with US banks, and banks in both regions are mostly interested in how their operations influence the society that banks operate in (direct social impact), followed by the indirect environmental impact of their products and services. We find evidence of the applicability of institutional theory in sustainability communications within our sample. Therefore, our findings provide a clearer breakdown of sustainability disclosure in the banking sector using a cross‐country context. Finally, we update our sample to include 67 EU banks matched by 67 US banks for the period from 2013 to 2021 and use ESG scores to reflect the sustainability dimension and we report that EU banks outperform the US banks in three dimensions (the direct social, the direct environmental and the indirect social scores), while the US banks have the lead in the indirect environmental sustainability scores.

The principles guiding the ECB’s enforcement and sanctioning powers

When the 2007–2008 crisis unfolded, the creation of the European Banking Union (EBU) became a pressing policy issue. As is well known, in fact, the wide array of institutional and substantive challenges brought up by the crisis prompted a legal overhaul that culminated in the creation of an unprecedented architecture.1 This original architecture comprises, amongst other things, a new body of rules—ie the ‘Single Rulebook’—new administrative entities—ie the three European agencies EBA, ESMA and EIOPA—and the conferral of innovative powers and responsibilities on the European Central Bank (ECB), reshaping the contours of this independent European institution.2 The ECB has in fact been endowed with supervisory powers thanks to the ‘enabling clause’3 in Article 127 TFEU. According to Article 127(6) TFEU ‘the Council, acting by means of regulations in accordance with a special legislative procedure, may unanimously, and after consulting the European Parliament and the European Central...

Does nonperforming loan securitization affect credit default swap spreads? Evidence from European banks

AbstractWe contribute to the growing literature on bank risk management by examining the credit risk implications of nonperforming loan (NPL) management during the period 2012–2020. We construct a unique database with 116 NPL deals by 31 European Union (EU) banks. Our study is motivated by the hypothesis that NPL securitization has a beneficial effect on bank loan quality and that this effect is incorporated in the bank's credit default swap (CDS) spread. Our analysis finds a statistically significant decline in a bank's CDS spread in the days leading up to and shortly after the announcement of an NPL securitization. This suggests that the CDS market views NPL securitization as a de‐risking activity and a means of risk mitigation. The impact is even more evident for NPL securitization with a government guarantee which may offer additional credibility to these de‐risking activities.

Several remarks on the monetary policy of EU related to the position of National Bank of Slovakia and a vision for The European Banking Union

This article is divided into three parts – each concerning the monetary policy of EU. First part deals with relationships between monetary policy of EU and economic policy of EU. Second part is central to the research goal of this article. In this part the similarities and differences between the status of National bank of Slovakia and European Central Bank are compared according to their respective roles and functions. Last part of the article describes legal framework of European banking union as a corner stone of future development of monetary policy of EU.

Трансформация денежно-кредитной политики ЕС в условиях финансовой нестабильности

Challenges the European economy began to face 12 years ago raised the question about actions European Central Bank (ECB) have to undertake to maintain the financial sustainability, considering its objective to ensure price stability while coping with a changed economic environment. Provision that the ECB is obliged to take efforts to ensure financial stability as well as potentially serious consequences of crisis’ impact on the banking system and industrial production, led to an expansion of its role beyond standard monetary policy measures, with the unconventional steps being taken in addition to conventional to combat the adverse impact of the financial crisis. While reducing the interest rate, ECB also provided a cheap financial capital for banks via fixed-rate “Long Term Refinancing Operations” (LTROs), and three “Covered Bond Purchase Programmes” (CBPP). Purchases of debt securities were also conducted via “Securities Market Programme” (SMP) and, later, with then ECB’s President Mario Draghi declaring that ECB will do “whatever it takes to preserve the euro”, possibility of their increase was announced with the start of “Outright Monetary Transactions” (OMT) Programme. A mere announcement of the OMT was enough to calm financial markets, as none of the eurozone countries applied for financial support within this programme’s framework. Then ECB proceeded with a full-fledged quantitative easing, starting to buy sovereign bonds under its Public Sector Purchase Programme (PSPP), having spent 2.6 trillion € on its implementation. Understanding that a monetary union without an efficient banking union is unacceptably dangerous, the European Banking Union, under which supervision of largest eurozone banks has transferred directly to the ECB, was progressively established. While ECB’s anti-crisis policies achieved their goals, prolongation of the strategy it adopted may create new risks for the financial stability of the euro area, such as excessive dependence of credit institutions on monetary support and excessive inflationary risks under a zero interest-rate policy. Still, EU institutions’ coordinated financial management played an important role in overcoming the existing turbulence, with fiscal and monetary policy measures reinforcing each other.

Differentiated Integration: The case of the European Banking Union

The European Banking Union (EBU), a system of unified financial supervision, regulation and resolution, arguably represents the biggest transfer of national sovereignty in Europe since the launch of the euro. Participation in the EBU is mandatory for the Eurozone states and voluntary for the non-Eurozone states, which makes it an example of differentiated integration (DI). This article analyses the implications of DI in the context of the EBU. The central question is whether the current EBU arrangements are going to result in uniform integration or continued differentiation. After outlining the main pillars of EBU, the article discusses whether we can envision more non-Eurozone states following the examples of Bulgaria and Croatia by opting into EBU before adoption of the euro, or whether there is a risk of more division between the EBU members and non-members. The focus is on the main economic and political considerations that affect the EBU in the medium term. The article shows that only the non-Eurozone states willing to relinquish their national sovereignty in financial supervision seek to join the EBU and that in the post-Brexit EU the differentiated EBU can potentially move towards more integration.

Integration in banking efficiency: a comparative analysis of the European Union, the Eurozone, and the United States banks

PurposeThis paper investigates the development of efficiency and the progress of banking integration in the European Union by checking for convergence among banks of European and Eurozone countries as well as contrasting the results with those of United States banks.Design/methodology/approachInitially, we employ the two-stage semi-parametric double bootstrap DEA method, which absorbs the effects of possible integration barriers in the measurement of efficiency. Afterwards, we apply a panel data model, in order to investigate the process of banking integration by testing for convergence and for convergent clusters in banking efficiency.FindingsOur main findings show that the bank efficiency of the US is considerably higher than that of the Eurozone and the European Union. Although there is no evidence of convergence across the banking groups, our results indicate the presence of club convergence. We also conclude that the US banking system is closer to convergence than the Eurozone and the European Union banks. Nevertheless, this outcome is subject to change in the future due to the fact that Eurozone and European Union banks' speed of convergence is higher than that of US banks.Originality/valueOur survey is unique in trying to check for convergence while controlling for country-specific and bank-specific factors that affect the efficiency of European and Eurozone banks. Moreover, recent literature does not compare the convergence of efficiency of Eurozone, European and US banking. Finally, in our paper special consideration was given to the comparison of commercial, cooperative and savings banks, as subsets of our banking groups.