European Supervision in Crisis
The European Central Bank and the Swiss government have worked out an ingenious plan to help European banks that are too big to fail; namely, the Europe Financial Stability Plan, or EFS. The main idea is to give these banks stimulus money to keep them operating through the recession, but not give them surplus money so they can just hoard it and sit on it. This sounds like a bad idea, because the world’s economies are suffering now more than ever before. And while some European countries will be bailed out by the United States and other foreign countries, many of Europe’s leading economies are facing trouble themselves. So this is not exactly the best plan.
However, I would submit to you that giving banks this stimulus money without providing any supervisory measures is the very definition of too big to fail. Not only does the EU Supervisory Authority for Banking Union not have enough staff to do the job properly, they don’t even have a real purpose. The idea that a supervisory body that is responsible for overseeing all banking institutions in Europe and globally can suddenly disappear without leaving any visible trails is simply ludicrous. This is why I call the whole concept of firm investment management theory into question.
But even if we take into account that the lack of real purpose behind the European Centralised Bank Supervision Theory doesn’t exist, let us look at another aspect of the same theory. Let’s say that you want to invest in a firm, let’s say funds of 100 million dollars. Would it be impossible to arrange financing through the banks? No, because you can transfer the ownership of the funds from the seller of the fund to yourself. You see, there is a difference between bank supervision and firm investment supervision.
The problem is that the banks want to retain as much control over their assets as possible, while at the same time the supervisory architecture of the European Centralised Bank Supervision Theory does not provide any means by which these two objectives can be realised. In fact the only way that they are likely to be changed is through a process of reinvention, which would mean a total restructuring of the current architecture they have. If this were to happen, the firms that are currently running these institutions could be forced out, possibly replaced by new, less intrusive firms that have not had such a bad reputation in the past.
The problem is that the current age of corporate investment managers is not built on the strength of firm investment management theories that are grounded in an understanding of the way that information flows through organisations. The real problem, according to many investment managers, is that this information is currently not being communicated or made available in a transparent and systematic fashion. There is a very real need for a rethink of the way that banks supervise financial instruments and other forms of non-financial transactions in the euro area countries. And while there may well be a need to introduce a pan-European supervisory architecture that will allow for the flow of information across all of the different banking institutions, this is something that is not likely to happen anytime in the near future. Instead of a pan-European supervisor, it makes more sense for the Commission to focus on establishing common standards across the different parts of Europe.
This might be viewed as a rather cynical view of the situation, but I am just stating the facts. These days, if you do not follow the prescribed lines of investment, you simply cannot expect to make any profits. In fact, many investors now regard the banking system in Europe as completely irrational and a complete scam due to the fact that most of the institutions provide poor levels of supervision and extremely inefficient supervisory practices. Many European firms have simply become too large to manage and they will not be able to survive for very long. So, what exactly has gone wrong?