The European Banking Authority’s role in harmonising EU financial markets

, by Maria Athanasiou

The European Banking Authority's role in harmonising EU financial markets
The European Central Bank building in Frankfurt. The European Banking Authority has been based in London, but plans to relocate to Paris as a result of Brexit. Photo: European Central Bank / Flickr (CC BY-NC-ND 2.0)

The EU system for the supervision of the financial sector is made up of three authorities: the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA). Although national authorities are still responsible for the monitoring of local financial institutions, the European supervisory authorities’ main goal is to improve the functioning of the internal market through appropriate, efficient, and harmonised European regulation and supervision.

What is the European Banking Authority?

The European Banking Authority (EBA) is an independent Authority of the EU, established on 1 January 2011 by the European Parliament and the Council, with the mission to ensure financial stability in the EU. More specifically, it aims to ensure that the banking sector is operating properly, effectively, and with integrity. To achieve this, the authority works for the creation of a set of harmonised rules regarding financial institutions, it evaluates potential risks and vulnerabilities, and it advances convergence of supervisory practices across the EU banking sector.

With the adoption of Binding Technical Standards (BTS) and Guidelines, the EBA contributed to the creation of a European single rulebook in banking, which helps to promote a level playing field for all financial institutions in the EU and to provide protection to depositors, investors and consumers. Through regular risk assessment reports and pan-European stress tests, it seeks to assess risks in the EU banking system. To practically ensure financial stability, it monitors the adherence of financial institutions to issued Standards and Guidelines.

To achieve its objectives, the EBA is able to bypass national regulators. However, while BTS are legally binding acts on all member states of the EU; Guidelines, Recommendations and Opinions are simply documents produced by the EBA with the aim of clarifying specific matters.

The EBA manages the regulation of the banking sector through its two main governing bodies: the Board of Supervisors, which takes all policy-related decisions, and the Management Board, which implements EBA’s mission. It works closely with other European supervisory authorities on matters with cross-sectoral relevance, such as the supervision of retail investment products and measures combating money laundering.

Has the EBA been successful?

Establishing a single market across all financial areas was one of the goals of the European Union. Regarding the harmonisation proceedings, the creation of the single financial area was essential. The implementation and observance of rules by all member states led to directives which gave all banks the right to start trading online and opening branches throughout the Eurozone.

It is contended that the judicially established rule of mutual recognition is separated from the administrative guideline of mutual recognition in the financial services market. The judicially formed principle of mutual recognition is not adequate in ensuring the free arrangement of financial services. [1] Consequently, legislative intervention, in view of harmonisation and the legislative principle of mutual recognition is required to further integrate the EU financial market.

The international financial crisis of 2008 brought up a significant vulnerability in the present framework, especially in countries like Ireland, the non-EU Iceland, and Greece. The lack of balanced regulation was joined by many risks where interference was required. This is why countries like Iceland were unable to fulfil the duty of regulating an inflated and unchecked banking framework. The updated EU directive on Markets in Financial Instruments that entered in force at the start of 2018 aims to strengthen investor protection and to increase transparency in the financial sector.

These are the main components of the new EU regulatory regime:

  • The establishment of the European Systemic Risk Board to regulate macro-financial and economic dangers to the European Union
  • The formation of the European System of financial supervision in connection to banking
  • The European Banking Authority and the formation of a single harmonised rulebook for Eurozone and non-Eurozone banks
  • The establishment of a single supervisory system in EU nations controlled by the European Central Bank
  • A uniform Deposit Guarantee framework
  • The formation of a single Resolution Mechanism to manage banks in the case of emergency or collapse.

Compliance with EBA rules

The financial crisis of 2007 exposed the glaring deficiencies in financial supervision in the international and European banking sectors, both regarding specific cases and in connection to the financial framework in general. Broadly based supervisory models have lingered behind financial globalisation and the incorporated and interconnected reality of European money-related markets, in which numerous monetary foundations work through borders. The crisis uncovered numerous deficiencies in the areas of participation, coordination, the reliable use of Union law and trust between national leaders.

It cannot be concluded that EBA has fully achieved its role: shortcomings exist in many areas, the rules and guidelines are not applicable to all member states of the European Union. On the other hand, though, some member states did not adopt regulations of EBA and continue to have their own rules in various areas of banking segment.


[1Mutual recognition refers to the principle of the EU law where member states must allow the sale of goods in their territory which are legally sold in another member state.

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