Towards Deeper Financial Integration in Europe: What the Banking Union Can Contribute
AbstractThe agreement to establish a Single Supervisory Mechanism in Europe is a major step towards a Banking Union, consisting of centralized powers for the supervision of banks, the restructuring and resolution of distressed banks, and a common deposit insurance system. In this paper, we argue that the Banking Union is a necessary complement to the common currency and the Internal Market for capital. However, due care needs to be taken that steps towards a Banking Union are taken in the right sequence and that liability and control remain at the same level throughout. The following elements are important. First, establishing a Single Supervisory Mechanism under the roof of the ECB and within the framework of the current EU treaties does not ensure a sufficient degree of independence of supervision and monetary policy. Second, a European institution for the restructuring and resolution of banks should be established and equipped with sufficient powers. Third, a fiscal backstop for bank restructuring is needed. The ESM can play a role but additional fiscal burden sharing agreements are needed. Direct recapitalization of banks through the ESM should not be possible until legacy assets on banks’ balance sheets have been cleaned up. Fourth, introducing European-wide deposit insurance in the current situation would entail the mutualisation of legacy assets, thus contributing to moral hazard.
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Bibliographic InfoPaper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 13.
Date of creation: Oct 2013
Date of revision:
banking union; Europe; single supervisory mechanism; risk sharing;
Other versions of this item:
- Buch, Claudia M. & Körner, Tobias & Weigert, Benjamin, 2013. "Towards deeper financial integration in Europe: What the Banking Union can contribute," Working Papers 02/2013, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
- E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-16 (All new papers)
- NEP-BAN-2013-11-16 (Banking)
- NEP-CBA-2013-11-16 (Central Banking)
- NEP-EEC-2013-11-16 (European Economics)
- NEP-MAC-2013-11-16 (Macroeconomics)
- NEP-MON-2013-11-16 (Monetary Economics)
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