The Regulation Framework for the Banking Sector: The EMU, European Banks and Rating Agencies before and during the Recent Financial and Debt Crisis

Author:Eleftherios Thalassinos
Position:Professor, PhD, University of Piraeus, Greece
Pages:395-409
SUMMARY

A regulation framework for the banking sector should be characterised by transparency, responsibility and performance in several important areas. These areas are the global and European framework for corporate financial reporting (CFR), risk management (RM), stockholder value creation (SVC), corporate governance (CG), corporate social responsibility (CSR) and sustainable development (SD). The... (see full summary)

 
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Performance and Risks in the European Economy
395
The Regulation Framework for the Banking Sector: The EMU, European
Banks and Rating Agencies before and during the Recent Financial and
Debt Crisis
Eleftherios Thalassinos
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Abstract: A r egulation framework for the banking sector should be characterised by transparency,
responsibility and performance in several important areas. These ar eas are the global and European
framework for corporate financial reporting (CFR), r isk management (RM), stockholder value creation
(SVC), corporate governance (CG), corporate social responsibility (CSR) and sustainable development (SD).
The regulation f ramework for the banking sector must also c onsider the fiscal and monetary environment in
which a banking institution operates. The global rating system and the rating agencies will also have an
important impact on any regulation framework for the banki ng sector. These two factors play a key role when
a financial, credit or debt crisis occurs. In this article, a holistic regulation framework f or the banking sector is
presented. T he article is based on European banks that are part of the European Monetary Union (EMU).
Initially, it focuses on the timelines and review the integration o f the European Monetary Union, relevant
legislation and information on member countries’ banking sectors. This information creates the framework
for the proposed model. The article considers all of the above factors in creating a holistic regulation
framework for the banking sector to present in the context of the recent f inancial, credit and debt crises that
have taken place in the EMU.
Keywords: Banking; Regulations; Financial Crisis; Debt Crisis; EMU
JEL Classification: G01; G21; G28; G30; H12;
1. Introduction
This current crisis is not under control yet and it may lead to a new global monetary system. The new
system must be independent from the rating agencies, the speculators, the CDSs, the country deficits
and the exchange rate fluctuations. Maybe this is a unique opportunity to redesign the global monetary
system with one reserve currency, with an extended cooperation among the hard currency areas and a
very sensitive and effective regulatory framework.
Unfortunately euro-currency failed to convince the international markets in its role as a reserve
currency. Actually euro failed to follow the description given to reserve currencies in 1960 by the
Belgian-American Professor Robert Triffin stating that “a reserve-currency nation must run a current-
account deficit to provide liquidity for the international monetary system”. The reward of the nation
for providing liquidity has been the modest returns of the seigniorage-equivalent to 2% of the amount
that is lent for providing that liquidity to the monetary union. This is the Triffin Dilemma which
nobody in the EU took it seriously.
The main aim of this paper is an attempt to examine and evaluate the role of the rating agencies before
during and after the recent financial crisis. Which is the methodology used by the rating companies
Moody’s, S&P, FITCH and others, in evaluating a bank’s financial health or a country’s economic
performance? A question that has been arisen and it is still open refers to the methodology used by
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Professor, PhD, University of Piraeus, Greece. European Chair Jean Monnet and General Editor - European Research
Studies Journal, Address: 80, Karaoli & Dimitriou St., 185 34 Piraeus, Greece, Tel: 30 1 4142000, Fax: 30 1 4142328,
Corresponding author: thalassinos@ersj.eu

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