Building responsive supervision over smaller banks in Europe: an insight from the Principal-Agent perspective

Abstract

The Single Supervisory Mechanism (SSM) is an administrative arrangement of national assistance to the ECB in exercising its exclusive supervisory competence. It sets two systems of assistance: ECB Direct Supervision (for large banks) and Indirect Supervision (for smaller and medium-sized banks) supervision. This paper analyzes dynamics between the ECB Banking Supervision as the principal and NCAs as its agents in the system of ECB Indirect Supervision. It identifies six formal (statutory) accountability and control mechanisms which are put at the ECB’s disposal to monitor the way how the NCAs carry SSM supervisory tasks when exercising the ECB’s exclusive supervisory competences under the SSM Regulation.     

Economic value of carbon sequestration in forests under multiple sources of uncertainty

The purpose of this paper is to calculate the value of stochastic carbon sequestration in climate change mitigation when also carbon dioxide emissions from fossil fuels and abatement costs are stochastic. The replacement cost method is used where the value of carbon sink is calculated as associated cost savings from replacement of more expensive mitigation options for achieving a given emission target. Minimum costs with and without carbon sinks are derived with a safety-first approach in a chance constrained programming framework which also accounts for variability in control costs. The theoretical results show that for high enough risk discount, carbon sink is not included in a cost effective mitigation program even when the carbon sink cost is zero. The empirical application to the EU independent commitment of 20% reduction in carbon dioxides shows large variation in carbon sink value depending on risk discount. Under no uncertainty, the value can correspond to 0.33% of total GDP in EU, but it declines due to the uncertainty associated with forest carbon sink and is zero for high probability levels in achieving the target. Thus, whether or not to recommend the inclusion of carbon sink in the EU climate policy depends on the uncertainty of carbon sinks in relation to other sources and on the importance of reaching stipulated emission reduction targets.     

Value of land as a pollutant sink for international waters

The purpose of this paper is to analyse and compare the values of a marginal change in the area of land as a pollutant sink under different decision-making contexts and objectives: international coordination versus national policies for pollutant reduction, and maximization of net benefits versus minimization of costs for pollutant reductions. The analytical results show that a coordinated policy between countries generates a higher value of a marginal change in the supply of land as a pollutant sink than an uncoordinated policy. It is also shown that the value is lower (higher) under the decision objective of maximizing net benefits when the efficient pollutant load is higher (lower) than the load target under the cost effectiveness approach. An application to the Baltic Sea drainage basin land as a nitrogen sink for the management of eutrophication reveals that the differences between values under different policy contexts and objectives can be quite large in magnitude.     

Primary and secondary values of wetland ecosystems

Wetlands are continuously degraded in many parts of the world. One reason is the lack of the appropriate valuation of the multifunctionality of wetland. In an attempt to improve the understanding of the importance of this feature of wetlands an alternative classification of values is suggested; primary and secondary values. Primary value refers to the development and maintenance of ecosystems — their self-organizing capacity. Secondary values are defined as the outputs, life-support functions and services, generated by wetlands. Methods for measuring these values are discussed. Three case studies are presented which use different valuation methods and which to different degrees capture the primary and secondary values. It is concluded that only part of the total wetland value can be captured in monetary terms.     

Cost-Effective Nutrient Reductions to the Baltic Sea

Due to eutrophication caused by heavy loads of nitrogen and phosphorus, the biological conditions of the Baltic Sea have been disturbed: large sea bottom areas without any biological life, low stocks of cods, and toxic blue green algaes. It is recognized that the nitrogen and phosphorus loads to the Baltic Sea must be reduced by 50% in order to restore the sea. The main purpose of this paper is to calculate cost effective nitrogen and phosphorus reductions to the Baltic Sea from the nine countries surrounding the Baltic Sea. The results show a significant difference in minimum costs of decreasing nitrogen and phosphorus loads to the Sea: approximately 12 000 millions of SEK per year and 3 000 millions of SEK respectively for reductions by 50%. It is also shown that a change from a policy of cost-effective nutrient reductions to a policy where each country reduces the nutrient loads by 50% increase total costs for both nitrogen and phosphorus reductions by about 300%. The results are, however, sensitive to several of the underlying assumptions and should therefore be interpreted with much caution.     

Using traffic data to estimate wildlife populations

Wildlife populations are threatened worldwide by, among others, habitat fragmentation and hunting pressure. An important impediment for the large scale, national and regional, management of the populations is the difficulty to quantify population dynamics. The purpose of this study is to present a tool for such estimations which is based on available data in several countries; traffic load and traffic accidents with wildlife. An econometric model is developed, which accounts for landscape characteristics. It is applied to wild boar in Sweden, for which data on traffic load and accidents for different counties and years are available. Landscape characteristics are introduced with direct or indirect effects on population growth. The indirect landscape model gives the best statistical performance, and the results show relatively small differences in calculated intrinsic growth rate among counties but considerable differences in predicted population developments.     

Cost efficient pesticide reductions: A study of Sweden

The minimum cost for reducing the farmers' use of pesticides is calculated. The measures include are; (i) a decrease in use of inputs, (ii) an improvement of the insurance system, and (iii) application of an ecotechnology where 5–10 meters along the borders of the fields are left untreated with pesticides. The cost of reducing the use of pesticides is measured by means of pesticide demand functions and the cost for improving an insurance system is measured as the risk premium. The empirical results indicate that the minimum cost for reducing the use of pesticides by 50% in Sweden corresponds to about 6 per cent of farmers' incomes from crop production. A simple comparison of policy instruments shows that the cost of a quota system is about 40 per cent higher than the costs of the charge and permit market systems. The farmers' decreases in incomes under a charge system are twice as high as under the other two policy instruments. The results are, however, sensitive to the levels of the pesticide price elasticities.     

International Versus National Actions Against Nitrogen Pollution of the Baltic Sea

Large nitrogen loads to the Baltic Sea play an important role for currentdamages caused by eutrophication: large sea bottom areas without anybiological life, low stocks of cods, and toxic blue green algae. In spite of therelatively large supply of biological and physical data on the sea,difficulties remain with respect to linking costs of nitrogen reductions withthe dispersion of associated benefits among countries. The purpose of thisstudy is therefore to analyse and calculate efficient nitrogen reductionsand associated net benefits under international co-ordination of nitrogenreductions and single country actions for two different specifications ofmarginal benefits: uniform and differentiated. Further, comparisons aremade with the current ministerial agreement of 50 per cent nitrogenreduction to the Baltic Sea. The empirical results show that total netbenefits under internationally co-ordinated actions are considerablyhigher than when countries act on their own. Another result is thatdifferentiated benefits give higher total net benefits than uniform, and alsoimply larger differences in net benefits among countries. However, resultsindicate that uniform marginal benefits generate net benefits for allcountries from co-ordinated actions as compared to single country actions.     

Ecosystem services and regional development: An application to Sweden

This study carries out interregional comparisons of development and sustainable use of natural capital with and without inclusion of non-marketed ecosystem services. A simple dynamic model of an open economy shows that appropriate adjustment of conventional income accounts includes flow and stock components, but excludes explicit entrance of pollution. Calculations are made for Swedish regions and for two types of ecosystem services — pollution sequestration and recreational services — provided by three types of ecosystems: forests, agricultural landscape and wetlands. When comparing the adjusted and non-adjusted regional income accounts it is shown that the two measurements generate significantly different pictures of regional income and growth; regions that are traditionally considered as relatively less growth promoting are shown to hold important sources of wealth from natural capital, while counties that are rich in conventional accounts fall behind when adjusting for values of changes in natural capital.