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The road towards the establishment of the European Banking Union

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  • Papanikolaou, Nikolaos

Abstract

The rising delinquencies in the U.S. subprime mortgage market in 2006 and the succeeding collapse in housing prices had a considerably negative impact on the functioning of the European financial systems and the smooth operation of European economies. Indeed, in the Euro-area, what started as a financial crisis escalated to a twin crisis after being doubled by the eruption of a massive sovereign debt crisis in 2010. The lack of an established set of bank supervision and resolution strategies at the Euro-area level, the vicious circle between banks and European nation-states, the threats for the sustainability of the common currency, and the deterioration of the market conditions were the key factors which lately led to the acceleration of the steps towards the creation of a banking union in Europe. The principal aim of the European Banking Union is to shape the necessary legal and institutional framework and provide the authorities with powers and tools to deal with ailing banks in order to prevent the devastating effects that a future shock may have on the financial system, the real economy, and the society. This paper presents the formal reactions of the sovereigns and the European Central Bank to the twin crisis, and critically discusses the key problems and the inherent weaknesses which led to the establishment of a banking union for the Euro-area member states. The structure of the banking union, the various aspects of its operation, and its future prospects are also presented and discussed.

Suggested Citation

  • Papanikolaou, Nikolaos, 2015. "The road towards the establishment of the European Banking Union," MPRA Paper 62463, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:62463
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    File URL: https://mpra.ub.uni-muenchen.de/62463/1/MPRA_paper_62463.pdf
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    References listed on IDEAS

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    1. Christoph M. Schmidt & Benjamin Weigert, 2012. "A Banking Union for Europe: Part of an Encompassing Long-term Governance Structure, No Short-term Fix," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(4), pages 3-9, December.
    2. Stefano Micossi, 2012. "Banking Union in the Making," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(4), pages 21-25, December.
    3. Koetter, Michael & Wedow, Michael, 2010. "Finance and growth in a bank-based economy: Is it quantity or quality that matters?," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1529-1545, December.
    4. Iain Begg, 2012. "Banking Union: Inevitable, But Profoundly Challenging?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(4), pages 15-20, December.
    5. David Howarth & Lucia Quaglia, 2014. "The Steep Road to European Banking Union: Constructing the Single Resolution Mechanism," Journal of Common Market Studies, Wiley Blackwell, vol. 52, pages 125-140, November.
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    1. repec:spt:fininv:v:7:y:2018:i:1:f:7_1_2 is not listed on IDEAS

    More about this item

    Keywords

    Eurozone; European Banking Union; bank regulation and supervision; sovereign risk;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F39 - International Economics - - International Finance - - - Other
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • 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
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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