The Challenges Of The Banking Union

The agreement on the need to strengthen Economic and Monetary Union in order to exit the current crisis, made at the June 2012 European Council meeting of Heads of State and Government, was the most decisive step towards European integration since the creation of the euro in 1999. On September 12, 2012, the European Commission presented two legislative proposals, one on the creation of a single supervisory mechanism (SSM) and the other on adapting the regulations setting up the European Banking Authority (EBA). The two proposals were accompanied by a communication providing a roadmap towards banking union. In addition to SSM, the Commission intends to continue working towards a single rulebook (European transposition of Basel Committee recommendations, known as CRD IV) while calling for a common deposit protection system and the integrated management of banking crises.

The ECB , the European Parliament and the European Council published their positions between late November and mid December 2012. On December 13, European finance ministers unanimously agreed on single bank supervision in the eurozone.

Banking union is the link between monetary union and the coordination of budget policies as part of the European fiscal compact 2 that took effect on January 1, 2013. It aims to loosen the ties between banks and states that are a source of vulnerability, largely reinforced by externalities pertaining to the single currency. It is in part founded on the theory of optimal currency areas (part I). Banking union is governed by an overall logic, and its four parts (single supervisory body, single rule book, partially mutualised deposit guarantees and bank resolution) form an inseparable whole (part II). Lastly the scope of banking union lies somewhere between that of the eurozone and the European Union, which will require appropriate governance (part III).

BY Laurent QUIGNON

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