Background

In light of the failures in supervision exposed by the financial crisis, President Barroso requested a group of experts, chaired by Mr. Jacques de Larosière, to propose measures to strengthen European supervisory arrangements. The objective was to establish a more efficient, integrated, and sustainable European system of supervision.

The Commission proposed replacing the EU’s existing supervisory architecture with a European System of Financial Supervisors (ESFS), consisting of three European Supervisory Authorities (ESAs): the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA). These three ESAs, along with the European Systemic Risk Board (ESRB), were established in January 2011 to replace the previous supervisory committees.

To implement the conclusions of the European Council and Euro Area summit at the end of June 2012, the Commission adopted a set of legislative proposals on 12 September 2012. This led to the creation of the Banking Union, composed of a Single Supervisory Mechanism (SSM) and a Single Resolution Mechanism (SRM). The decision to establish the Banking Union is one of the most significant European decisions in the last thirty years.

A new supervisory and resolution architecture, which is effectively multileveled but governed from the EU level, is being put in place. The design and implementation of the new system place significant demands on the ESAs, the SSM, the SRM, the national supervisory and resolution authorities, the ECB, the European Commission (the Institutional Bodies), and the financial sector, in addition to wider systems of governance and accountability.

Agreement on a legal framework is only the beginning of a process that requires institution-building, capacity-building, and the development of a coherent European strategy and approach. This is being done in a compressed timeframe. Multileveled systems of regulation and supervision raise complex challenges of coordination, information exchange, and consistency across a financial system of considerable heterogeneity. Translating the blueprint from design into day-to-day practice will present unforeseen issues. As the new system unfolds, a considerable amount of learning will be required to create a “common culture” in banking and finance within the European Union. Credit institutions will need to understand and meet the requirements of a new and unfamiliar supervisory and regulatory system.

To respond to these needs, the European University Institute established the Florence School of Banking & Finance to bring together various constituencies of academics, supervisors, regulators, policymakers, and private stakeholders. The Florence School of Banking & Finance is a truly European forum, built to analyze and discuss the analytical foundations of the new landscape of financial regulation and supervision at the European and national levels, and to support the development of a common culture of regulation and supervision in the banking and finance sector. While regulation and the new supervisory scheme are the main focus of the School, the constitutional framework, integration, and broader politics will form an integral part of the School’s activities.