Firmer Foundations for a Stronger European Banking Union

Written by | Monday, December 28th, 2015
European Values

Dirk Schoenmaker (Bruegel)

The Banking Union is a system of banking supervision and crisis management of banks at the EU level, which works on the basis of pan-European rules. Its aim is to safeguard security and reliability of the banking sector in the Eurozone and throughout the EU as well as to ensure that the bankruptcy of banks, which are no longer viable, will be resolved without the use of taxpayers’ money and with minimal impact on the real economy. As such, the Banking Union represents a milestone in the integration of the European banking sector.

A transit to the European Banking Union was accelerated by the financial crisis in 2012. The crisis highlighted the need for better regulation of the EU financial sector and the necessity for oversight of this sector in particular within the Eurozone. The Eurozone’s crisis and the different reactions of individual Member States to this crisis emphasized the interdependence between banks and national governments. Different solutions implemented in the individual Member States have moreover led to the fragmentation of the single market for financial services, which in turn contributed to the distortions in the lending to the real economy.

The share of the assets in the national banking systems, which comes from other EU countries, had been rising until the outbreak of the 2007 financial and economic crisis. The latest figures now once again suggest that this growth is beginning to return again. Interestingly, about 14 percent of banks’ assets in the Banking Union come from other EU countries. At the same time, about one-fourth of the assets of banks, which are among the top 25 banks in the Banking Union, are located in non-EU countries. Given the long-term objective of the Banking Union to support a more intense cross-border banking, there is an emerging view that the European Central Bank (ECB), as the lender of last resort, should obtain more supervisory powers if the purpose of the Banking Union shall be successfully achieved. Representatives of the banking sector naturally disagree with such a procedure since this would definitely weaken their already precarious position of sovereign entities.

(The study can be downloaded here: http://bruegel.org/wp-content/uploads/2015/11/WP-2015_132.pdf)

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