The EAEU’s institutional framework for banking regulation: Looking forward

Eduard Dzhagityan, Associate Professor of the School of World Economy, published an article titled: ‘Shaping the EAEU’s Institutional Framework for Banking Regulation: Perspectives and Risks’ (International Organisations Research Journal (Scopus database, Q3), 2019, Vol. 14, No 2).

The lack of perspectives for the global scale implementation of the Basel III standards triggered the convergence of the national banking regulation mechanisms towards their regionalization. This process aims at protection of the national banking sectors from systemic risks, as evidenced by a single supervisory mechanism in the Eurozone. As such, the integration process in the EAEU logically demands single financial market, which, in turn, requires a regional-level system of banking regulation and supervision. However, difference in the national regulatory mechanisms, on the one hand, and the lack of supranational regulatory authorities, on the other, may still stall the development of the supranational system of banking regulation. In this regard, the author proposes “mini-Basel III” as a single banking regulation mechanism for the EAEU, which would meet the objectives of the EAEU single financial market, the interests of the EAEU member states in the area of macro-financial management, and would become the methodological hub of the future EAEU regulatory mechanism.

As a result, “mini-Basel III” could help to resolve the regulatory trilemma among the opportunities, relevance, and perspectives of supranationalization in the EAEU financial realm. In order to adapt the “mini-Basel III” framework to the objectives of Eurasian integration, E. Dzhagityan substantiates alternative scenarios of the institutional structure of EAEU banking regulation, which may be called upon optimization of regulatory logistics and algorithms for convergence of the national regulatory mechanisms. Based on systematization of the advantages and risks of each of the proposed scenarios, the author came to the conclusion that currently there are no priority scenarios in the EAEU supranational regulatory architecture; nevertheless, the effectiveness of the EAEU banking regulation system will depend on the effectiveness of the proposed supranational body that would coordinate the process of regulatory convergence.