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

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