Banking Union : a solution to the euro zone crisis
AbstractIn June 2012 European Council launched the banking union as a new project expected to contribute to solve the euro area crisis. Is banking union a necessary supplement to monetary union or a new rush forward? A banking union would break the link between the sovereign debt crisis and the banking crisis, by asking the ECB to supervise banks, by establishing common mechanisms to solve banking crises, and by encouraging banks to diversify their activities. The banking union project is based on three pillars: a Single Supervisory Mechanism (SSM), a Single Resolution Mechanism (SRM), a European Deposit Guarantee Scheme (EDGS). Each of these pillars raises specific problems. Some are related to the current crisis (can deposits in euro area countries facing difficulties be guaranteed?); some other issues are related to the EU complexity (should the banking union include all EU member states? Who will decide on banking regulations?), some other issues are related to the EU specificity (is the banking union a step towards more federalism?); the more stringent are related to structural choices regarding the European banking system. Banks'solvency and ability to lend, would depend primarily on their capital ratios, and thus on financial markets' sentiment. The links between the government, firms, households and domestic banks would be cut, which is questionable. Will governments be able tomorrow to intervene to influence bank lending policies, or to settle specific public banks? An opposite strategy could be promoted: restructuring the banking sector, and isolating retail banking from risky activities. Retail banks would focus on lending to domestic agents, and their solvency would be guaranteed by the interdiction to run risky activities on financial markets. Can European peoples leave such strategic choices in the hands of the ECB?
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Bibliographic InfoPaper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/144pedpca18ff8v7fh3tvnp99m.
Date of creation: Apr 2014
Date of revision:
Publication status: Published in Revue de l'OFCE - Débats et politiques, 2014, pp.195-241
Banking union; European Construction;
Other versions of this item:
- Henri Sterdyniak & Maylis Avaro, 2013. "Banking union a solution to the euro zone crisis," Sciences Po publications 2013-20, Sciences Po.
- Maylis Avaro & Henri Sterdyniak, 2013. "Banking union:a solution to the euro zone crisis ?," Documents de Travail de l'OFCE 2013-20, Observatoire Francais des Conjonctures Economiques (OFCE).
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-05-09 (All new papers)
- NEP-BAN-2014-05-09 (Banking)
- NEP-CBA-2014-05-09 (Central Banking)
- NEP-EEC-2014-05-09 (European Economics)
- NEP-MON-2014-05-09 (Monetary Economics)
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