Tailoring prudential policy to bank size: the application of proportionality in the US and euro area
In-depth analysis prepared for the European Parliament's Committee on Economic and Monetary Affairs (ECON).
This study was prepared for the European Parliament’s Committee on Economic and Monetary Affairs (ECON). The study is available on the European Parliament’s online database, ‘ThinkTank‘. Copyright remains with the European Parliament at all times.
All jurisdictions tailor their prudential policies to bank size, with generally more complex – though not necessarily more stringent – requirements for larger banks. This paper compares such policies in the euro area and United States, in the context of the differences in banking system structures and legal frameworks. There are vastly more stand-alone smaller banks and credit unions in the US than in the euro area. The US approach to prudential requirements is generally more differentiated by bank size than the euro area’s, but the US has a more uniform framework for bank crisis management and resolution. Given the permanence of cross-border fragmentation and overbanking in the euro area, further size-based policy differentiation would be ill-advised.
Research assistance by Alkiviadis Tzaras is gratefully acknowledged, as are comments from Rym Ayadi, Rebecca Christie, Gonzalo Gasos, Anna Gelpern, Marcel Magnus and Guntram Wolff.