What are the main factors for the subdued profitability of significant banks in the Banking Union, and is the ECB’s supervisory response conclusive and exhaustive?
|Publication:||White Paper No. 65|
Jan Pieter Krahnen,
|Keywords:||Bank Profitability, Supervisory Guidance, Banking Union, Financial regulation|
In this paper, we argue that the own findings of the SSM THEMATIC REVIEW ON PROFITABILITY AND BUSINESS MODEL and the academic literature on bank profitability do not provide support for the business model approach of supervisory guidance. We discuss in the paper several reasons why the regulator should stay away from intervening in management practices. We conclude that by taking the role of a coach instead of a referee, the supervisor generates a hazard for financial stability.
This paper was provided at the request of the Committee on Economic and Monetary Affairs of the European Parliament and commissioned and drafted under the responsibility of the Economic Governance Support Unit (EGOV) of the European Parliament. It was originally published on the European Parliament’s webpage.
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