Banking union: will it end up the crisis in Europe?
Banking union: will it end up the
crisis in Europe?
26 July 2013, Klaipėda
• What is a banking union?
• Why is it needed in Europe?
• What are the main challenges?
• Will it end up the crisis?
Completing the EMU
• Rompuy’s Report (2012) proposed four
building blocks for a “genuine EMU”:
– Integrated financial framework;
– Integrated budgetary framework;
– Integrated economic policy framework;
– Democratic legitimacy and accountability.
Single rSingle r
Main elements of the banking union
* Plus ESM direct bank recapitalisation instrument.
Europe’s financial trilemma
National financial policies Cross-border banking
Source: Schoenmaker, 2009.
Why a banking union?
• Lessons from the crisis:
– Inadequate regulation and supervision;
– Lack of cooperation in crisis management;
– Fragmentation of the Single Market;
– Vicious circle between sovereigns and banks;
– Negative externalities for taxpayers.
• Need to revive lending and growth.
Fragmentation of the Single
Source: ECB, 2013.
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Progress on the banking union
Negotiations on the single rulebook
Single resolution fund too small?
Source: ECB and Open Europe, 2012.
~ €45 trillion (359 % of GDP) in the
~ €32,5 trillion (342 % of GDP) in the
Proposed Single Resolution Fund:
~ €55 billion in 10 years;
ESM direct bank recapitalisation:
- Up to €60 billion.
No common deposit insurance?
• Supranational decisions
• Remaining sovereign-
Sovereign-bank link encouraged by
• Banks in Southern Europe hold more than €700
billion of sovereign debt – two times more than
before the crisis.
Banking union is not a Holy Grail
• Only one of four building blocks towards a
• Other lessons from the crisis – two views:
– Economic and political integration is lagging
behind monetary integration (incomplete
mandate of the ECB; no system of fiscal transfers,
no debt mutalisation; democratic deficit, etc.);
– Institutions of the EMU are not fit for purporse
(disregard of common rules, insufficient incentives
to implement structural reforms, etc.).
• Banking union is necessary to decrease the
probability of similar situations in the future,
but there is a risk of having an incomplete
European financial framework;
• It is only one of four building blocks of
strengthening the EMU;
• If “own house in order” principle is not
respected, European solutions will not be