The most basic argument for shifting to the European level is that it might be difficult to achieve simultaneously a single and stable financial market on a fast track, while preserving a high degree of national regulation and supervision with only decentralised efforts at harmonisation (Kremers, Wierts & Schoenmaker, 2003). Arguments against moving to a centralised solution at the present time could be that the degree of integration in financial markets does not yet justify such a move and that other preconditions have not yet been fulfilled. For one, the issue of political legitimisation must be settled and financial regulation should be harmonised first. Centralised supervision, it is said, could be justified, if before its emergence, the operating parameters of financial institutions ? relating to specific business powers, rules of ownership, entry and competition, supervision, capital standards, risk and diversification guidelines and deposit insurance ? would be brought up to a minimum common level and harmonised (Gaspar 2003).



On the other end of the spectrum, problems are emerging as a result of increased market integration which has been stimulated by the European Monetary Union (EMU) and the establishment of the single market. European financial market liberalisation is based on the principle of home country prudential control. Reszat (2005) stated that, strictly speaking, the increasing size and scope of large cross-borer financial groups should not affect this rule. But, it is debatable how far this principle can continue to be applicable. The demand will also grow for further rationalisation and standardisation of the methods of supervision. This simplifies pan-European operations, not to mention reducing the costs that goes with them. European groups that are active in different member states today face multiple reporting requirements and supervisory techniques and, hence, high costs- matters that can be addressed by a continent wide financial overseer.

From the preceding discussions, it could be said that maintaining the efficiency and stability of the European financial system is already a supervision challenge at the national level and is progressively more of a concern in the European level as well. The conclusion that this paper has arrived at is that a supervisory system based on cooperation is, at the moment, the most advantageous arrangement given present conditions. While the existing institutional arrangements for supervision are adequate, their practical functioning needs to be enhanced by fostering cross-border cooperation.

In particular, there should be the fostering of information exchange among major financial institutions and market trends among supervisory authorities and central banks. This should be further enforced through switching from implicit to explicit agreements depending on the circumstances, when certain types of information exchange and coordination are required. Giovanni & Mayer (1991) agreed that this would be in line with the basic solution, which is cooperation, and further added that there needs to be a European level mechanism.

Measures at the European level could also be justified to ensure that the mechanism is applied in all relevant bilateral relations. To prevent crises in the process, two measures should be done: to observe binding pre-commitments by authorities to guarantee information exchange and to incite market discipline by requiring more public disclosure of information by financial institutions. If it turned out that a crisis still arises, there should be the development of multilateral cooperation and pooling of information, as well the development of mechanisms for coordination to facilitate unified solutions.

The deeper challenges in financial supervision are related to the characteristics of the European financial system and the increased competition and market integration that is stimulated by EMU. It will require agreement on the part of policymakers and supervisors to act rapidly on the completion of the regulatory framework and the adoption of the structure of financial supervision to market developments. Elements of the provisions worked out in the Netherlands provide at least some indication of the issues to be addressed at a European level. But because the tasks are different at a national and European level, it is unlikely that any national structure will offer a model suitable at the European level.