TY - JOUR

T1 - Centralised or Decentralised Banking Supervision? Evidence from European Banks  

AU - Avignone, Giuseppe

AU - Altunbas, Yener

AU - Polizzi, Salvatore

AU - Reghezza, Alessio

N1 - 18 months embargo

PY - 2021/2

Y1 - 2021/2

N2 - This paper analyses the impact of the Banking Union on European bank credit risk. Specifically, we investigate the effect that the establishment of the Single Supervisory Mechanism has had on the credit risk of the banks it supervises in comparison to financial institutions that are still supervised by National Supervisory Authorities. We analyse a sample of 746 European banks over the period 2011-2018, by means of a difference-in-differences methodology. We provide empirical evidence that Single Supervisory Mechanism supervised banks reduced credit risk exposure compared to banks supervised by National Supervisory Authorities, suggesting that the Banking Union has successfully reduced the riskiness of the European banking sector. Our results passed a battery of robustness tests that support the reliability of our analysis. Our contribution sheds light on the benefits of centralised versus decentralised supervision, on the effectiveness of the current supervisory system in Europe, and on its impact on European bank risk.

AB - This paper analyses the impact of the Banking Union on European bank credit risk. Specifically, we investigate the effect that the establishment of the Single Supervisory Mechanism has had on the credit risk of the banks it supervises in comparison to financial institutions that are still supervised by National Supervisory Authorities. We analyse a sample of 746 European banks over the period 2011-2018, by means of a difference-in-differences methodology. We provide empirical evidence that Single Supervisory Mechanism supervised banks reduced credit risk exposure compared to banks supervised by National Supervisory Authorities, suggesting that the Banking Union has successfully reduced the riskiness of the European banking sector. Our results passed a battery of robustness tests that support the reliability of our analysis. Our contribution sheds light on the benefits of centralised versus decentralised supervision, on the effectiveness of the current supervisory system in Europe, and on its impact on European bank risk.

U2 - 10.1016/j.jimonfin.2020.102264

DO - 10.1016/j.jimonfin.2020.102264

M3 - Article

VL - 110

JO - Journal of International Money and Finance

JF - Journal of International Money and Finance

SN - 0261-5606

M1 - 102264

ER -