The European Commission is planning to accelerate the completion of the missing parts of the banking union so that EU citizens and businesses can benefit from deeper financial integration and a more stable financial system already starting at the end of 2018. When completed, the banking union will become the backbone of the Economic and Monetary Union (EMU), making the bloc more stable and resilient to shocks while limiting the need for public risk sharing.
The Commission’s plan to speed up the process towards the banking union comes ahead of the December Euro Summit where completion of the banking union will be part of the discussions on further deepening of the EMU. A complete banking union together with the capital market union will promote a stable and integrated financial system in the EU. The Commission has already proposed measures to further reduce risk and improve risk management in financial institutions.
The EU executive is now specifically proposing new measures to reduce non-performing loans and to help banks diversify their investments in sovereign bonds. On the risk-sharing side, it has some suggestions to facilitate progress in the European Parliament and the Council to make a progress towards a European Deposit Insurance Scheme (EDIS) that will guarantee citizens’ deposits in the banking union at a central level.
Valdis Dombrovskis, Vice-President for Financial Stability, Financial Services and Capital Markets Union, said that the banking union was essential in absorbing crises and sharing risks via private channels, thus making sure that taxpayers are not first in line to pay. In 2012, the Commission proposed the banking union with the aim to restore confidence in the euro and to place the financial sector on a sounder footing. The union is based on prudential requirements for financial institutions such as bank supervision, protection for deposits and management of failing banks.