April 26, 2018

The SRB Chair Elke König published an article on the completion of Banking Union. In the article, she emphasized that we should take a step back and identify further elements, which impede the completion of a full-fledged Banking Union. Once the Banking Union is completed, there is little reason for ring-fencing adds Elke König.

The Single Supervisory Mechanism tasked with reducing the occurrence of crises ex-ante and the Single Resolution Mechanism equipped with common rules for the orderly wind-down of a failing bank ex-post have proven to be two important pillars of Banking Union. The missing third pillar, a common European Deposit Insurance Scheme with appropriate safeguards is a prerequisite for the completion of the Banking Union, as it would harmonize the level of depositor protection in all member states. However, efforts are also needed in other domains. For instance, the divergence of national insolvency laws is a major obstacle toward a full-fledged Banking Union. In the current system, the counterfactual of no-creditor-worse off (NCWO) might produce different results in different countries, depending on the national insolvency regime, and thus negatively impact on the orderly wind-down of a bank. SRB, therefore, encourages legislators to harmonize national insolvency laws. This harmonization would facilitate resolution planning for cross-border banking groups within the Banking Union.

While harmonized rules certainly help to ensure effective supervision and resolution, the consistent enforcement of these rules and close coordination and cooperation among authorities are equally decisive for the functioning of the Banking Union. Hence, the cooperation of ECB and SRB must be improved even further and the updated Memorandum of Understanding will help in this regard. Moreover, the cooperation and monitoring between the individual national competent and resolution authorities and their interaction at the European level requires further intensified efforts. Thus, the trust of national authorities in the effectiveness of the European supervisory and resolution regime is expected to be considerably strengthened. Overcoming the outlined obstacles to the fragmentation of the Banking Union can be a major contributor to financial stability, enhance resolvability, and depositor protection and help build trust and confidence in the functioning of the Banking Union among the different national authorities.

 

Related Link: Article

Keywords: Europe, EU, Banking, Banking Union, SSM, Ring Fencing, SRB

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