The Banking Union is designed to break the link between ailing banks and indebted governments. Its aim is to avoid the strain which is put on public finances when banks need rescuing, and, at the same time, to reduce banks’ exposure to increasing risks in public debt.
The Banking Union is based on a single rulebook for financial regulation, common to all 28 members of the Single Market. The rulebook is implemented by a number of legislative texts, e.g. the capital requirements legislation.
An important element of the Banking Union is the Single Supervisory Mechanism (SSM) for the euro area states (also open to all EU member states) which is expected to be operational in late 2014. It consists of two parts. First, a Council regulation assigns the role of “prudential supervisor” of credit institutions to the European Central Bank (ECB), in cooperation with national supervisors of course. Second, a regulation of the EP and the Council amends the regulation on the establishment of the European Banking Authority (EBA), changing voting rules and assigning to the EBA the task of creating a single supervisory handbook to complement the single rulebook.
The Single Resolution Mechanism (SRM), proposed in July 2013, would be the following, complementary step. After the ECB has signalled that a bank needs to be shut down or restructured, the Single Resolution Board would prepare the resolution plan of the bank, the Commission would decide if and when to put the bank into resolution and national authorities would execute the plan under supervision. A major concern is the legal basis of the SRM: some experts consider that it requires a Treaty change.
A supranational Deposit Guarantee Scheme (DGS) to protect depositor’s savings when a bank fails is not planned. Instead priority is being given to a network of national schemes. Once agreed, this proposal will make sure that every Member State has its own deposit guarantee fund which must be properly funded in advance.
A comprehensive EU response to the financial crisis: a strong financial framework for Europe and a banking union for the eurozone / EC, MEMO/13/679, 10/07/2013
The press release offers a snapshot of the Banking Union and the arrangements surrounding it.
European Banking Union: In depth / Financial Times, regularly updated
The articles published on the topic by Financial Times can be read here.
How to Form a More Perfect European Banking Union / Ubide, Ángel; Peterson Institute for International Economics, No. PB13-23, October 2013, 9 p.
“The current blueprint of the banking union exists because it was the easiest alternative at a time of stress, not because it was carefully designed to be the best one.”
Banking union: a solution to the euro zone crisis? / Avaro, Maylis; Sterdyniak, Henri; OFCE, working paper 2013-20, September 2013, 27 p.
This paper discusses questions related to the “three pillars” of the Banking Union.
European Banking Union / Breuss, Fritz, WIFO, WIFO Working Papers, No. 454, September 2013, 38 p.
The author questions the possibly unequal distribution of potential benefits of the Banking Union between the EU member states.
The Long and winding Road to a Eurozone Banking Union / Roubini, Nouriel; Oman, William; RGE, What’s on Nouriel’s Mind, 12 June 2013
Roubini gives a detaileld outline what a Banking Union should look like and what obstacles may exist on the way to its creation.
Financial institutions’ views
Towards a European Banking Union / Mersch, Yves, European Central Bank, Speech, 30 September 2013
A Banking Union for the Euro Area / Goyal, Rishi et al.; IMF, Staff Discussion Notes No. 13/1, 12 February 2013, 31 p.
This Staff Discussion Note elaborates the case for, and the design of, a banking union for the euro area. It discusses the benefits and costs of a banking union, presents a steady state view of the banking union, elaborates difficult transition issues, and briefly discusses broader EU issues. As such, it assesses current plans and provides advice.
EU Banking Union: Right idea, poor execution / Bernhard Speyer, DB Research, 4 September 2013
The experts of the Deutsche Bank describe the current situation and sketch out future developments.
Finance ministers tussle over banking union, sovereignty / EurActiv.com, 15 October 2013
Germany digs in heels as Europe moves towards banking union / Emmott, Robin; O’Donnell, John, Reuters, 15 October 2013
British blessing fails to break banking union impasse / Emmott, Robin; O’Donnell, John, Reuters, 15 October 2013