Macro-prudential supervision in Europe and the U.S. : an institutional perspective

Abstract

This article delves into a comparative analysis of the European Systemic Risk Board (ESRB) and the Financial Stability Oversight Council (FSOC), with a focus on their roles in promoting financial stability and mitigating systemic risk. Both entities were established in response to the 2009 Global Financial Crisis (GFC), but they differ in their approaches and regulatory powers. The ESRB, part of the European System of Financial Supervision (ESFS), primarily relies on advisory powers, including those of issuing warnings, recommendations and employing a "comply or explain" mechanism. In contrast, the FSOC initially had more robust regulatory powers, allowing it to designate non-bank financial companies as Systemically Important Financial Institutions (SIFIs). The article argues that the FSOC's ability to promote financial stability was eroded by political influence, particularly through the 2019 revised interpretative guidance. The ESRB was also reformed in 2019 via amendments to the ESRB Regulation, however the amendments were minor and did not impact the body’s effectiveness. The analysis is structured around three key areas: mandate and empowerment, governance and accountability, and data collection and aggregation. It examines the changes each institution underwent post-amendments and their possible impact on the effectiveness of the institutions. The points in this article are derived from and attempt to summarise a paper on this subject co-authored with Matthew Xerri, Margaux Morganti and Beatriz Brunelli Zimmermann.