Reforming European financial supervision: Adapting EU institutions to market structures

EU policymakers have created a new European System of Financial Supervision, consisting of three European Supervisory Authorities and a European Systemic Risk Board. This article examines some of the legal and institutional issues, including the ESAs' authority to develop an EU code of financial regulation and to oversee its implementation by Member States and resolve related disputes. The article argues that the creation of the ESAs and ESRB is a proportional response to the increased integration of EU financial markets and the cross-border nature of systemic risk. The article suggests, however, that the ultimate effectiveness of these supervisory reforms will depend on whether they achieve a balance between crisis prevention supervisory measures and crisis management involving the rescue or resolution of financial firms. A better balance needs to be struck to achieve financial stability objectives. © 2011 ERA.