Policy brief

A ‘twin peaks’ vision for Europe

The organisation of the European Supervisory Authorities (ESAs) is based on a sectoral approach with one ESA for each sector, with separate authoritie

Publishing date
13 November 2017

Erratum 6 December 2017: Table 1, page 3. "Portugal is currently reviewing its supervisory model."

The European Union’s financial supervisory architecture is based on a sectoral model with separate authorities for banking, insurance and securities and markets. New developments in the EU financial sector make this sectoral structure increasingly out of date:

  • Brexit creates a need for strong EU-level wholesale market and conduct-of-business supervision to build an integrated capital market for the EU27;
  • Mis-selling of bank bonds – that can be bailed in – to retail consumers has highlighted the need for a strong conduct-of-business supervisor for banking and other retail financial services, separate from prudential supervision to ensure a strong focus on the interests of consumers;
  • Financial conglomerates, combining banking and insurance, make up about a third of Europe’s banking and insurance sector. Joined-up supervision would strengthen the prudential supervision of these conglomerates.

To deal with these challenges, the EU should commit to a twin peaks model as a long-term vision for supervision. The first peak would be prudential supervision focusing on the health and soundness of financial firms. As these financial firms have become increasingly interwoven, the vision of integrated cross-sector prudential supervision is increasingly compelling, even though legal obstacles imply it cannot be implemented at the European level in the near term.

The second peak would be a strong markets and conduct of business supervisor. This supervisor would solely focus on the proper functioning of markets and fair treatment of consumers. This twin peaks model should guide Europe’s efforts to deal with current challenges.

About the authors

  • Nicolas Véron

    Nicolas Véron is a senior fellow at Bruegel and at the Peterson Institute for International Economics in Washington, DC. His research is mostly about financial systems and financial reform around the world, including global financial regulatory initiatives and current developments in the European Union. He was a cofounder of Bruegel starting in 2002, initially focusing on Bruegel’s design, operational start-up and development, then on policy research since 2006-07. He joined the Peterson Institute in 2009 and divides his time between the US and Europe.

    Véron has authored or co-authored numerous policy papers that include banking supervision and crisis management, financial reporting, the Eurozone policy framework, and economic nationalism. He has testified repeatedly in front of committees of the European Parliament, national parliaments in several EU member states, and US Congress. His publications also include Smoke & Mirrors, Inc.: Accounting for Capitalism, a book on accounting standards and practices (Cornell University Press, 2006), and several books in French.

    His prior experience includes working for Saint-Gobain in Berlin and Rothschilds in Paris in the early 1990s; economic aide to the Prefect in Lille (1995-97); corporate adviser to France’s Labour Minister (1997-2000); and chief financial officer of MultiMania / Lycos France, a publicly-listed online media company (2000-2002). From 2002 to 2009 he also operated an independent Paris-based financial consultancy.

    Véron is a board member of the derivatives arm (Global Trade Repository) of the Depositary Trust and Clearing Corporation (DTCC), a financial infrastructure company that operates globally on a not-for-profit basis. A French citizen born in 1971, he has a quantitative background as a graduate from Ecole Polytechnique (1992) and Ecole Nationale Supérieure des Mines de Paris (1995). He is trilingual in English, French and Spanish, and has fluent understanding of German and Italian.

    In September 2012, Bloomberg Markets included Véron in its second annual 50 Most Influential list with reference to his early advocacy of European banking union.


  • Dirk Schoenmaker

    Dirk Schoenmaker is a Non-Resident Fellow at Bruegel. He is also a Professor of Banking and Finance at Rotterdam School of Management, Erasmus University Rotterdam and a Research Fellow at the Centre for European Policy Research (CEPR). He has published in the areas of sustainable finance, central banking, financial supervision and stability and European financial integration.

    Dirk is author of ‘Governance of International Banking: The Financial Trilemma’ (Oxford University Press) and co-author of the textbooks ‘Financial Markets and Institutions: A European perspective’ (Cambridge University Press) and ‘Principles of Sustainable Finance’ (Oxford University Press). He earned his PhD in economics at the London School of Economics.

    Before joining RSM, Dirk was Dean of the Duisenberg school of finance from 2009 to 2015. From 1998 to 2008, he served at the Netherlands Ministry of Finance. In the 1990s, he served at the Bank of England. He is a regular consultant for the IMF, the OECD and the European Commission.

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