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THE FINANCIAL SYSTEM OF THE EUROPEAN UNION
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been given an institutional and regulatory
boost, particularly in the euro zone. The Banking
Union has been described as a triangle formed
by regulation, supervision and resolution (the
winding up or restructuring of lenders). The tri-
angle as a conceptual construction is equally ap-
plicable to the European financial system as a
whole.
Regulating the financial system
The EU has come up with a great deal of new
regulations as a result of the financial and eco-
nomic crisis, as part of an abandonment of fi-
nancial deregulation, which was the prevailing
ideological paradigm, at least until the summer
of 2007.
The main new legislation is as follows:
– Regulation (EC) 1060/2009 on credit rating
agencies
– Regulation (EU) 648/2012 on derivatives.
– Regulation (EU) 575/2013 and Directive
2013/36/EU on capital requirements of cred-
it institutions and investment firms (basically
it is Basel III, which reinforces said capitaliza-
tion requirements in terms of both the quan-
tity and quality of assets, as well as the con-
ditions of reserves and liquidity, compared
with Basel II, which, in turn, had in practice
replaced Basel I).
– Directive 2014/59/EU for the recovery and
resolution of credit institutions and invest-
ment firms.
The last directive came into force on 1
January 2015 and it is particularly important be-
cause it seeks to put an end to bank bailouts in
the future, ensuring that in the event of wind-
ing up a bank it is the shareholders and creditors
(holders of bank debt securities) who suffer
losses.
Also, at the time of writing, two particularly
important draft regulations were going through
the European Parliament and Council: one on
the separation of investment banks from retail
banks above certain thresholds and another on
the regulation of so-called money market funds.
The proposals are especially important because
while the purpose of Directive 2014/59/EU is to
stop shareholders and creditors from being res-
cued, it does not solve the issue of systemic
banks, that is to say, those that are too big to
fail. Hence a complementary regulation is need-
ed to reduce the systemic risk.
A regulation on financial indices is also being
drawn up to prevent the manipulation of bench-
marks such as the Libor or the Euribor that cer-
tain banks were guilty of in the past.
It can be said that as a whole the EU has
reregulated the financial sector in two respects.
On the one hand, the applicable rules have
been reinforced and, on the other, they have
been harmonized in the internal market. Both
trends are positive. In the course of this term of
office, the regulatory framework that began be-
ing built in 2009 is expected to be completed.
Lastly, as far as financial regulation is con-
cerned it is worth highlighting the proposed
directive to establish a Financial Transactions Tax
(FTT), which was initially conceived for the
Union as a whole and is currently limited to 11
euro-zone states, including the main economies
of the monetary union (Germany, France, Italy
and Spain), under the reinforced cooperation
procedure, since the Commission’s proposal in
the Council failed to prosper (on account of the
opposition of several countries led by the United
Kingdom).
The FTT was proposed by Nobel economics
laureate James Tobin in 1972 with the aim of
levying a small tax on the international financial
movements that proliferated following the end