Cause and Effect: If you build it, will they come?

July 23, 2014
/   Spotlight

Many financial institutions assume that digital banking is lucrative because the most valuable customers happen to bank online. While there is certainly a correlation between online bankers and higher profitability, quantitative evidence suggests that...

Fast Facts: Student Loans

January 22, 2013
/   Insights

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services industry. Topics span TARP, Dodd-Frank, insurance, lending, retirement savings and more.  Below are some updated Fast...

Intuit 2020 Report: The Future of Financial Services

April 11, 2011
/   Insights

Today, Intuit released the latest edition of the Intuit 2020 report, Intuit 2020 Report: The Future of Financial Services, which identifies and examines four key trend areas that will  transform the financial services industry...

Small Business: Perception vs. Reality

November 21, 2012
/   Insights

In the most recent election cycle, like most others before it, the one sector of the economy that got the most attention was small business.  This is the future, we were told by every...

The Top 10 Trends in the Digital Banking Industry

December 18, 2013
/   Spotlight

2014 is rapidly approaching and as the year wraps, the Digital Insight team has pulled together the top 10 trends in the digital banking industry based on data and trends from studying financial institutions....

Mobile Banking Engagement: Data from Digital Insight

June 24, 2013
/   Spotlight

Intuit Financial Services has been conducting a comprehensive and ongoing study of financial institution customers. From these studies, the company has been able to provide a deeper view of banking customer behavior across several...

Industry Perception, Optical Delusion

January 14, 2013
/   Insights

In Washington, they talk a lot about ‘optics.’ This has nothing to do with regulatory scrutiny, or government mandates on eyeglasses. It has to do with perception—how something looks, the way a particular story...

Social Banking: Blessing or Curse?

August 1, 2012
/   Insights

While the topic of Facebook and banking has generated plenty of heat (though not necessarily a lot of light), the debate seems mostly focused on two broad issues: The much-maligned IPO, and the notion...

Banker signing paper

From this side of the Atlantic, the European Union (EU) can seem like a weird thing—most of us aren’t exactly sure when it started, how far it stretches or even what it exactly is. What we do know is that it’s a case study in constant evolution: It dates back to at least the ’50s, when six nations formed the European Coal and Steel Community and, later, the European Economic Community. However, the current European Union actually takes its name and primary structure from the Maastricht Treaty of 1993. The monetary union, the source of the Euro, was born in 1999; the constitutional basis for the EU, the Treaty of Lisbon, arrived 10 years later; and countries are still joining (Croatia became a member only last year).

Of course, as a unified entity, the EU still seems a little bit strange. But the potential for superpower status is clearly there, which may be one reason why it was awarded the Nobel Peace Prize in 2012.

And then we get to March 2014. That’s when, after protracted negotiations, the last piece of the puzzle fell into place for an all-purpose European banking authority that will, at least by design, be better equipped to handle industry crashes, especially the kind that might have a domino effect. Most importantly, the entity has the regulatory authority to restructure, sell off or even shut down failing banks.

The move is a direct response to recent disasters that had catastrophic consequences for many institutions. Even entire nations have been similarly affected, most famously when a series bank failures and attempted bailouts virtually bankrupted Ireland and sparked major scandals. And whenever this happened, of course, other organizations and governments had to step into the breach, forcing taxpayers in one country to pay for the mistakes of financial services corporations in others.


To its credit, the new entity is designed to look forward rather than just back. The European Central Bank (ECB) has already been doing due diligence on larger financial services institutions to look for potential minefields. It won’t be a huge surprise if it does find problems. Meanwhile, the Resolution Board, as it’s called, has a two-pronged mandate.

First, it takes the power of supervision away from local regulators, who might be too close to the corporations they’re supposed to be monitoring. (They might also turn a blind eye to avoid making national institutions look bad.)  More important, perhaps, is the other function, which entails setting up a fund that is empowered to take essentially unilateral action on lenders that are deemed to be in trouble. In these instances, the fund can order a restructuring, sale or even shutdown (in some cases there will be other steps necessary). The fund will have in its coffers $76 billion to conduct these rescues as needed, with the money to be raised through levies on the industry.

The intent, of course, is to protect taxpayers from having to foot the bill for bad decisions made by bank executives. It should also help send a message of stability to financial markets everywhere. These are laudable goals, surely, but will it work?

To be clear, the Resolution Board doesn’t even exist yet. It won’t launch until next year, and contributions to the fund will start the year after that. There are also objections being raised to the effect that the agreement doesn’t go far enough. Some argue that in order to be truly effective, the new entity should be completely independent, rather than tied to an industry authority like the ECB, which has its own connections to national interests. But for those who want strong regulation, it’s clearly a start.

That brings us back to these shores. As we all remember from recent history, the United States has had its share of crashing banks, taxpayer-funded bailouts and accusations of lax regulation. Is there anything for us to learn from what the European Union is doing?

 

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James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.

Brad Strothkamp

http://www.forrester.com/rb/analyst/brad_strothkamp