Eurozone leaders are firmly committed to a banking union, at least on paper. But do Member States agree on the current proposals? And what do these proposals leave out? This column argues that a dangerous combination of disagreements between Member States over contentious issues and pitfalls in the design of new institutions may well ensnare the Eurozone along its faltering path towards recovery.

Eurozone leaders are firmly committed to a banking union, at least on paper. But do Member States agree on the current proposals? And what do these proposals leave out? This column argues that a dangerous combination of disagreements between Member States over contentious issues and pitfalls in the design of new institutions may well ensnare the Eurozone along its faltering path towards recovery.

A piecemeal approach towards banking union is emerging, with banking supervision first and resolution and deposit insurance at some undefined later stage. This column argues that such an approach may lead to an unstable banking union and that any attempt at banking union must include an integrated deposit insurance and resolution authority in order to be successful.

On 12 September the European Commission unveiled its proposals for the transfer of supervisory responsibilities to a European level to the ECB. This is the first step towards a banking union, with the transfer of deposit insurance and resolution at a European level being the other two. This column reviews the main advantages of moving supervision to a European level and to the ECB in particular and highlights some of the resulting challenges and risks, also in relation to the other two steps as the three functions – supervision, deposit insurance, and resolution – are intimately interconnected.

Economists in the Eurozone seem set on the principle of a single supervisory body to make up a part of a new banking union. This column argues that when thinking about the inner workings of this new institution, we need to learn from the mistakes of the Spanish regulators in dealing with the cajas.

Although current banking union proposals are a critical step towards resolving the Eurozone crisis, they fall short of providing an integrated resolution and supervision framework for all of Europe. In addition, emerging European countries are concerned about insufficient influence on the proposed single supervisory mechanism and the prospect of fiscal responsibility for crises elsewhere. Some countries outside the Eurozone also worry that exclusion from potential access to the ESM might tilt the playing field against local banks. This chapter makes proposals for addressing these concerns.

With confidence in the Eurozone at an all time low, the problem of large-scale capital flight has come to the fore. This column argues that a common deposit insurance scheme as outlined in proposals for a banking union within the Eurozone would by itself not provide a solution to the problem.

The Eurozone is currently suffering from the affects of having an interdependent banking sector without a unified body to oversee it or to rescue it in times of crisis. This column argues that the current situation is unsustainable and that the ECB should assume these responsibilities for the sake of the Eurozone as a whole.

With most of the debate around banking union in the Eurozone focusing primarily on the financial institutions it will regulate, this column argues that the issue of sovereign debt of the members of the Eurozone needs also to be taken into account.

The Eurozone crisis has shown that the traditional approach of EU supervisory cooperation is not enough. This column argues the gaps in cross-border bank regulations have to be addressed on three levels: A short-term crisis resolution mechanism for the Eurozone, a functioning banking union, and stronger cooperation agreements across the EU and beyond. Critically, such reforms have to start from the resolution component.