The transition to a European banking union is not straightforward. A key issue is how to prioritise risk sharing and risk reduction. This column examines three possible approaches, describing the respective transition scenarios and analysing the consequences for banks during the transition phase. None of the scenarios is optimal for all countries, but waiting too long may lead to solutions needing to be found under the pressure of a new crisis.
Bert Smid, Beau Soederhuizen, Rutger Teulings, 10 September 2018
Georg Ringe, Jeffrey Gordon, 28 January 2015
Bank resolution is a key pillar of the European Banking Union. This column argues that the current structure of large EU banks is not conducive to an effective and unbiased resolution procedure. The authors would require systemically important banks to reorganise into a ‘holding company’ structure, where the parent company holds unsecured term debt sufficient to cover losses at its operating financial subsidiaries. This would facilitate a ‘single point of entry’ resolution procedure, minimising the risk of creditor runs and destructive ring-fencing by national regulators.
Stefano Micossi, 05 June 2014
The European banking union is in pressing need of a unified banking resolution mechanism, but public bail-in has become increasingly unpopular. This column details new legislation towards a single resolution mechanism in the EU that minimises public exposure. The shareholders of an insolvent bank will be the first to take the hit, followed by creditors, before the public. This has the advantage also of mitigating moral hazard.
Jeffrey Gordon, Georg Ringe, 30 April 2014
The European Parliament recently adopted the Single Resolution Mechanism. Though supposed to be a pillar of the European banking union, it is fraught with difficulties. This column makes a proposal for a new organisational structure that can deal with bank failure more effectively. European banks should be required to self-insure against failure. Further, the ECB should be the only financially credible player to provide liquidity for the resolution procedure. These proposals would strengthen the current banking union project, and can overcome certain political difficulties.
Nicolas Véron, 19 December 2012
European leaders pieced together an historic compromise last week on a European banking union. This column argues that the agreement, which centred on banking supervision, is only the first step on the long and winding road towards a banking union. But the fact that this step is now essentially confirmed is almost unqualified good news.
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