The EU, UK and US landscape

One global bank can answer to a dozen supervisors at once: the Fed for its holding company, the OCC for its US bank, the PRA and FCA in London, the ECB in Frankfurt. Knowing who is in charge of what is the first question in any crisis.

L1.2.09: Regulators and supervisors gave the world map: global standard setters, then national authorities organised in sectoral, integrated or twin peaks models. This lesson zooms in on the three systems that shape most global banks and insurers, and asks a sharper question: for a given firm, who is in charge?

The European Union: one rulebook, shared supervision

After the crisis the EU built a single rulebookOne set of prudential rules for all EU banks: the CRR, the CRD and the technical standards made under them. and, for the euro area, a banking union. Three layers matter:

The ECB is a supervisor; the EBA and EIOPA mostly are not. They write detailed rules and push for consistent supervision, while day-to-day work stays with the ECB and the national competent authoritiesNational competent authority: a country's own supervisor, such as BaFin in Germany or the ACPR in France.. For insurers there is no ECB equivalent: national supervisors such as BaFin, the ACPR or IVASS apply Solvency II (L2.7.05: Solvency I to Solvency II). Securities markets have a third authority, ESMA, and the European Systemic Risk Board watches the system as a whole.

The United Kingdom: twin peaks

Since April 2013 the UK has split the work in two. The Prudential Regulation Authority, part of the Bank of England, supervises the safety of banks, building societies, credit unions, insurers and the largest investment firms. The Financial Conduct Authority supervises how all firms treat customers and markets, and is also the prudential supervisor for everyone else. Banks and insurers are therefore dual-regulatedSupervised by two authorities: in the UK, the PRA for safety and soundness and the FCA for conduct.. The Bank of England's Financial Policy Committee looks at the whole system and sets the countercyclical buffer (L2.7.04: Basel III and its finalisation), and the Bank is also the resolution authority.

The United States: charters and layers

The US has a dual banking systemThe US system in which banks choose a national or a state charter, which decides their supervisors.: a bank's charterA bank's licence to operate. In the US it can be national (from the OCC) or from a state. decides its supervisors.

The FDIC also insures deposits up to US$250,000 per depositor, per bank, per ownership category, and acts as receiver when a bank fails. Insurance stays with the states, which coordinate model laws and the risk-based capital formula through the National Association of Insurance Commissioners (NAIC). Markets belong to the SEC and the CFTC, and the Financial Stability Oversight Council brings the agencies together.

Which euro-area banks does the ECB supervise directly? The SSM Regulation sets precise criteria. A bank is significantA bank the ECB supervises directly, mainly because of its size, its importance to its country or its cross-border business. if any one of these holds:

• its total assets exceed €30bn;
• its total assets exceed 20% of its country's GDP, unless they are below €5bn;
• it is one of the three most significant banks in its country;
• it has large cross-border activities, or it has received direct assistance from the euro area's rescue fund.

Even a less significant bank can be taken over by the ECB if needed to apply high standards consistently. A bank with €18bn of assets in a country with GDP of €80bn misses the size test but holds 22.5% of GDP, so it is significant.

Match each firm or task to the authority mainly in charge. Several authorities are used more than once.

Atlantic Holdings is a made-up US banking group. It owns a national bank in New York, a broker-dealer in London and a bank subsidiary in Frankfurt with €60bn of assets. It also owns a small life insurer in Connecticut. Who supervises what?

Cross-border groups are supervised on the home and hostThe home supervisor oversees a group from the country of its head office; host supervisors oversee its local subsidiaries and branches. principle that the Basel Committee's Concordat set out in 1975 (L2.7.02: The Basel Committee and Basel I). For the largest groups, the FSB's resolution standards require crisis management groups of home and host authorities and agreed resolution plans. Asia-Pacific supervisors such as Japan's FSA, the Hong Kong Monetary Authority, the Monetary Authority of Singapore and Australia's APRA sit on these colleges for banks active in their markets, and apply Basel through their own national rules.

• EU: one rulebook (CRR, CRD, EBA standards). The ECB supervises significant euro-area banks; national authorities supervise the rest and all insurers. EBA and EIOPA write rules and promote consistency.
• UK: twin peaks. The PRA supervises the safety of banks and insurers; the FCA supervises conduct, and prudence for other firms.
• US: the charter decides. OCC for national banks, Fed for holding companies and state member banks, FDIC for state non-member banks, deposit insurance and failed banks.
• US insurers are regulated by the states, coordinated through the NAIC.
• Cross-border groups have a home supervisor leading a college of host supervisors.

Single rulebook

One set of prudential rules for all EU banks: the CRR, the CRD and the technical standards made under them.

SSM

Single Supervisory Mechanism: the ECB and the national supervisors of the euro area (and any member state that opts in), working together since November 2014.

Significant bank

A bank the ECB supervises directly, mainly because of its size, its importance to its country or its cross-border business.

National competent authority

National competent authority: a country's own supervisor, such as BaFin in Germany or the ACPR in France.

Dual-regulated

Supervised by two authorities: in the UK, the PRA for safety and soundness and the FCA for conduct.

Charter

A bank's licence to operate. In the US it can be national (from the OCC) or from a state.

Dual banking system

The US system in which banks choose a national or a state charter, which decides their supervisors.

Resolution

Handling a failing bank so that critical services continue and losses fall on shareholders and creditors, not taxpayers.

Supervisory college

A group of supervisors from every country where a cross-border group operates, led by the home supervisor.

Home and host

The home supervisor oversees a group from the country of its head office; host supervisors oversee its local subsidiaries and branches.