The European Central Bank (ECB) has introduced a new facility to financial intermediaries that they call “firm investment advice”. It basically means that if you want to access information on how your portfolio is performing, you can request it from any of the banks in the euro area countries. This makes the banks compete for your business. The banks know that you are using their services, and so they try to offer you the best advice. How does this work? This is explained below.
When the majority of the banking system was designed during the Second World War, there was no centralised bank supervision. This meant that there were numerous little banks that lent money which depended on the ability of the banks to supply it. As more countries were integrated into the European Union (EU), it became necessary for each country to have a centralised bank supervision so that the money that was lent would be controlled and issued according to the rules laid down by the union. The European Central Bank today is still regarded as one of the most powerful financial regulators in the world.
The introduction of bank supervision was meant to improve liquidity, and to increase the efficiency of the supervisory process. The introduction of supervisory staff and rules concerning firm investment advice brought together all the different parts of the banking union. They came up with the euro area decision-making centre or the EUROS. The working paper was approved by the governments of many countries, and it became the basis for future developments.
Firm investment advice is provided by banking organisations that are part of the euro area countries. The decision-making part of this system is usually performed by the banks, but there are many other firms that provide market information and research. The architects of the system include the members of the European Central Bank (ECB), the European Investment Market (EEMO), European Network of Financial Supervisors, the European Supervisory Authority (ESMA), the European Securities and Markets Authority (ESMC), and the European Union (EU). There are also bodies which regulate certain aspects of the management of risk and corporate finance. These bodies are European Supervisory Authority for Voluntary Funds (RESV) and European Supervisory Authority for Credit Risk (ESCR).
The increased importance of these European institutions gave rise to the need for more efficient supervisory methods. The introduction of a common set of principles for supervision has led to the development of the European System of Mortgage Lending (ESML) and European Supervisory Authority for mortgage financing (ESMC) in 2021. The construction of a uniform approach towards supervision was accompanied by an increase in efficiency and quality of supervision. Some of the main improvements made in the supervision of loans in the past decade are better target selection of credit risks, greater use of complex pricing models, improved data collection, and more effective use of risk management systems by local supervisors. The success of these developments relies mainly on the increased use of complex pricing models and on improved quality of financial information.
The increased importance of banks and other financial institutions in the economy is one of the reasons why they are required to have a supervisory body as part of their regulation. This is necessary in order to protect the interests of the creditors of the bank. In addition, the government wants to make sure that the bank supervision is effective supervisory bodies are therefore created in order to ensure the consistency of the supervision. The creation of a uniform system of supervision might increase efficiency and quality of supervision.