Perspectives and risks of shaping the EAEU institutional framework for banking regulation
The institutional aspect of the post-crisis banking regulation reform (Basel III) still remains unsettled, and as such undermines regulators’ efforts in shaping a seamless platform for international financial intermediation. On the other hand, lack of perspectives for global acceptance of the Basel III standards amid internationalization of banking activities is one of the main reasons of regulatory asymmetries that are difficult to handle at the national level. Under these circumstances, efforts of the governments and financial regulators are a central core of their policy in protecting banking sectors from systemic risks: It becomes imperative to bring together national mechanisms of banking regulation and to develop a regional system of regulatory institutions, as is evidenced by the single supervisory mechanism in the euro area countries.
Strengthening stress-resilience of the national banking sectors in the Eurasian Economic Union (EAEU) and expansion of banking activities to the Eurasian economic integration will require a conceptual framework of the EAEU banking regulation system. However, different regulatory regimes in the EAEU member states along with the lack of supranational regulatory institutions may slowdown the progress of the Eurasian mechanism of banking regulation. This means that operationalization of the EAEU regulatory mechanism will depend on whether the “mini-Basel III” format as a methodological hub of the regionalization and supranationalization will act as an enabler of resolution of the regulatory trilemma among the feasibility, relevance, and opportunities of supranationalization.
The institutional aspect of “mini-Basel III” is intrinsically linked to the integrity and consistency of the supranational authority for regulation of the EAEU financial markets being an authority documented in the Treaty on the EAEU; however, the costs of regulatory alignment may exceed the advantages of a single-institution regulatory architecture owing to the existent and tacit risks of heterogeneity of the national regulatory models. Stemming from the complex financial sector environment that falls short of valid and reliable institutional fundamentals, we propose alternative scenarios for the EAEU regulatory mechanism that could be sought for optimization of regulatory logistics and algorithms of regulatory alignment. Based on systematization of the benefits and weaknesses of each of the scenarios as well as on comparative analysis as to whether the proposed scenarios would ensure continuum of financial intermediation and financial stability, we found that currently there are no priority approaches to the design of a supranational institutional system in the EAEU. At the same time, identical structure of the national banking sectors together with the least expensive scenario approach could underpin the process of regulatory supranationalization; however, to secure integrity of the EAEU supranational authority, it should be complemented with an authority that would be responsible for coordination of the EAEU-wide regulatory alignment.