EZ banking union with a sovereign virus

Daniel Gros 14 June 2013

a

A

The purpose of the proposed banking union is to de-link banks from their sovereigns.

  • Putting the ECB in charge of supervision and creating a common resolution mechanism should help.

But this is not enough.

  • European banks hold too much government debt of their own governments to really sever the sovereign-bank link.

Until the link is broken, the Eurozone will continue to be vulnerable to disruptive, self-reinforcing feedbacks of the type that brought the Eurozone to the brink of collapse in 2011-12.

a

A

Topics:  EU institutions Europe's nations and regions

Tags:  eurozone, EZ banking union

The first step in Europe’s banking union is achievable, but it won’t be easy

Nicolas Véron 29 October 2012

a

A

The leaders of Eurozone countries issued an unprecedented commitment on 29 June; the statement began, “[w]e affirm that it is imperative to break the vicious circle between banks and sovereigns” (Euro Area Leaders 2012). This statement officially acknowledged leaders’ intention to break the ‘doom loop’ of the mutually-reinforcing deterioration of credit conditions afflicting weaker member states such as Spain and the banks headquartered in them.

a

A

Topics:  EU institutions Europe's nations and regions

Tags:  ECB, crisis management, EZ banking union

The first step in Europe’s banking union is achievable. But it won’t be easy.

a

A

The leaders of Eurozone countries issued an unprecedented commitment on 29 June; the statement began, “[w]e affirm that it is imperative to break the vicious circle between banks and sovereigns” (Euro Area Leaders 2012). This statement officially acknowledged leaders’ intention to break the ‘doom loop’ of the mutually-reinforcing deterioration of credit conditions afflicting weaker member states such as Spain and the banks headquartered in them.

a

A

Topics:  EU institutions Europe's nations and regions

Tags:  ECB, crisis management, EZ banking union

Banking union: Where we’re going wrong

Dirk Schoenmaker 16 October 2012

a

A

The European Commission (2012) has presented its legislative proposal for banking union whose key element is a ‘Single Supervisory Mechanism’ to be headed by the ECB, but leaves resolution and deposit insurance at the national level. Is that viable? A recent paper by Pisani-Ferry and Wolff (2012) on the fiscal implications of a banking union argues that a common deposit insurance fund is not necessary at this point. The reason given is that deposit funds insure against the failure of a single, small financial institution, but not against the failure of the Eurozone financial system.

a

A

Topics:  EU institutions Europe's nations and regions

Tags:  EZ banking union

A first step towards a banking union

Vasso P. Ioannidou 16 October 2012

a

A

The European Commission’s proposal in brief

a

A

Topics:  EU institutions Europe's nations and regions

Tags:  EZ banking union

Five lessons from the Spanish cajas debacle for a new euro-wide supervisor

Luis Garicano 16 October 2012

a

A

For a financial crisis of such a magnitude that it threatens both the solvency of the Spanish state and effectively destroyed the credibility of the Spanish supervisors, it is surprising how slowly it has developed. With a similar combination of a large real estate bubble and a complicated financial crisis the Irish bank recapitalisation (and the nationalisation of Anglo Irish) in January 2009 took place a full three years before the entire Spanish financial system had to confront the reality of its losses with the collapse of Bankia in May 20121.

a

A

Topics:  EU institutions Europe's nations and regions

Tags:  EZ banking union

Banking union: The view from emerging Europe

Erik Berglöf, Ralph De Haas, Jeromin Zettelmeyer 16 October 2012

a

A

A Eurozone-based ‘banking union’ could be crucial for the survival of the Eurozone and its future stability. It would help sever the much-feared ‘death loop’ between sovereigns that are exposed to losses in their national banking systems and banking systems directly and indirectly exposed to sovereigns. But would it also address the deficiencies of nationally based supervision and resolution of multinational banks which have plagued financially-integrated Europe for the last 15 years?

a

A

Topics:  EU institutions Europe's nations and regions

Tags:  EZ banking union

Two types of capital flight: Will a common deposit insurance help to stabilise the TARGET2 imbalances?

Frank Westermann 16 October 2012

a

A

A Friedman-type experiment helps a lot to illustrate the welfare implications of capital flight. Think of the owner of Spanish government bonds. Worried about default, she might want to leave the country and invest in safe assets abroad. Suppose she would put them in a backpack, take the train to Frankfurt and deposit her bonds in the safe. Then, there would be no welfare implications in either Germany or Spain. But the capital flight was also not successful from the investors’ perspective.

a

A

Topics:  EU institutions Europe's nations and regions

Tags:  deposit insurance, TARGET2, EZ banking union

The Single European Market in banking in decline – ECB to the rescue? 

Daniel Gros 16 October 2012

a

A

The prudential rules for banks are in principle the same throughout the EU, as they are codified by various EU directives and regulations. In reality, however, these supposedly common rules are implemented by national supervisors today in such a way as to ‘balkanise’ the Eurozone’s banking markets.

a

A

Topics:  EU institutions Europe's nations and regions

Tags:  ECB, EZ banking union

Banking union in Europe and other reforms

Viral Acharya 16 October 2012

a

A

Many observers have rightly noted that problems in the banking system have been at the core of the ongoing European crisis. In response, policymakers in Europe have proposed a banking union. In particular, the European Commission has proposed that the ECB have broad authority over all banks within the supervisory mechanism (Veron 2012).

a

A

Topics:  EU institutions Europe's nations and regions

Tags:  Banking reform, EZ banking union

Pages

Events