Noah denkt™  -
    Project for Philosophical Evaluations of the Economy
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The manageable risks of the European Banking Union
SWOT analysis, drafted on Dec. 16, published on Dec. 19, 2012

    La Asociación de Inspectores del Banco de España denuncia en un informe la actitud del supervisor ante las
    malas prácticas. “La forma habitual de reacción ante los indicios de delito es mirar hacia otro lado. (…) La
    influencia de la industria [bancaria] ha modulado la actual supervisión, de modo que con un supuesto buen
    clima de dialogo entre supervisor y supervisado, se ha relajado la aplicación de medidas correctivas sobre
    las deficiencias  observados por los inspectores. (…) El problema no ha estado en la falta de identificación
    de los riesgos como en la ausencia de acciones supervisoras tendentes a mitigarlos. Los problemas se
    conocían, simplemente ha habido una falta de actuación. (…) Hay áreas importantes que durante muchos
    años so se han visto, como ocurrió con algunas cajas que para no interferir en los procesos se suspendieron
    las actuaciones in situ y al alargase los procesos. (…)  …resultó que durante tres a cinco años decisivos no
    se revisó la inversión de forma mínimamente eficaz. (…) El modelo de supervisón en los dos grandes
    bancos ha consumido en torno a un tercio de los recursos totales, en detrimento de los asignados al foco de
    entidades con problemas: cajas y bancos mediantes.” (…) Otro tercio de los casi 400 inspectores [del Banco
    de España] se han dedicado (…) “casi en exclusiva a la participación en comités externos y grupos de
    trabajo” volcados en actividades de coordinación internacional y armonización de criterios, “sin que cuenten
    con conocimientos necesarios”.

    El País, Jan. 6, 2013, (page 18,19) reporting and quoting from a report the inspectors of the Bank of Spain have published in
    the beginning of 2013. The report deals with the problems and inefficiencies in the system of supervision that the Bank of
    Spain enacted during the years preceding the financial crisis. (later insert)

Noah denkt™ welcomes the European Banking Union (EBU) that has been put on the way at last week’s
European Union summit in Brussels. Obviously, there are risks attached to the introduction of new pan-European
authority. But these risks are, in our opinion, manageable as long as all parties concerned, i.e. the European
public, the European governments,
banks and the ECB itself, are aware of them. These risks can be described as

  • First, the administrative challenge: Will it be possible to organize the supervision in such a way that the
    European Central Bank as in institution is not overwhelmed with the sheer number of banks (3000, let
    alone 6000 as originally suggested by France) that it will have to oversee from now on, on a continuous
    basis. Clearly, it poses quite an organizational task for any institution to develop a coherent and effective in-
    house program that throughout all the departments and subdivisions adheres to the same standard of
    diligence, the same standard of soundness and the same standard of administrative rigor. It will certainly
    take a strong President of the ECB as well as a powerful and congenial department head to impose a
    unified vision of what that supervision should in effect look like.

  • Secondly, the cultural challenge: Will the ECB be able to communicate effectively to all the different banks
    in the different countries that operate under different jurisdictions and with different local languages? Or will
    be there be some kind of subterfuge on the part of regional banks when it comes to implementing the
    restrictions and provisions that have been imposed by a far way controller in a far away institution?
    Obviously, compliance with ECB procedures will first require the actual acceptance of that ECB’s authority
    by the local bank. This acceptance, however, of a non-national authority is by no means guaranteed. Just
    witness the Greeks’ less than honorable track record in reporting economic data to Eurostat in Brussels.
    And witness also Eurostat’s reticence in double checking those numbers which it, right form the start,
    perceived to be suspicious. In other words, European institutions are faced with a very real deficit of
    recognition when reaching down to the local and regional levels. And, unfortunately, it is not only the
    wayward recipients of pan-European decrees in the provinces who perceive this lack of legitimacy that
    surrounds the European institutions, no, even the European technocrats themselves suffer from a certain
    degree of disbelief and insecurity when trying to make their weight felt.  

  • All this, obviously, has a lot to do with our third political, i.e. nation-state, challenge:  After all, the sad truth
    of all European institutions is that they are in a limbo between the old nation-state concept of European
    politics and the as yet unfinished idea of a European unity that would have overcome the limits of the
    earlier parochial reality. The European Banking Union will have to operate in that limbo. In other words, it
    will have to deal with the fact that people are quite ambivalent in their allegiance to it. That in turn means
    that ECB clients and their political representatives will be just as happy to support the banking union
    whenever it suits their needs but that they will be equally ready to question the EBU’s work whenever
    opportunity seems to dictate that. To cope with that the ECB will have to have very forceful in its daily
    dealings with the banks. Luckily, it has a good chance to achieve that largely because of the money
    printing ability that it has at its disposal. So, in conclusion, it does make sense to embark on this EBU
    adventure, if only to substitute the danger of exuberant local patriotism with a still nascent pan-European
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European Banking Union, the risks of a European banking Union, supervising banks,
Bank supervisor, how to supervise 3000 banks, European Union, reality of European
institutions, effectiveness of European institutions, legitimacy problems of European