SRB Publishes Article by Elke König on Diversity in Banking Union

In the article, Ms. König mentions that Banking Union is "a diverse mosaic of small and complex financial institutions" and the structure of individual markets in the Banking Union varies hugely. Therefore, regulation and supervision have to cope with the variety of business models. The important thing from a financial stability point of view is that small banks and big banks have sustainable business models. Consequently, regulation must be proportionate, as there is no “one size fits all.” Furthermore, in a single market, the diversity in national rules has to be overcome to facilitate mergers and acquisitions. A good regulatory framework can facilitate this, but of course, the role of the regulator is not to ensure every bank can make a profit. Every bank, big and small, must be in a position to comply with the regulatory standards and bear the cost that is inherent in the safety net that regulation provides to society. 

The article points out that there is also work to be done in harmonizing insolvency procedures. The Banking Union has 19 different insolvency procedures; therefore, banks and their investors will have to contend with, and learn about, many different legal systems just to invest in a market that is outside their home member state. The single market has still a way to go. There probably is a need for consolidation in the European banking market to remove overcapacity and ensure greater profitability. The article reinforces that a completed Banking Union and a full Capital Markets Union would be a solid framework so that the markets can be left to play their part, strengthening the sector going forward and thus helping to promote financial stability.

Related Link: Article

Keywords: Europe, EU, Banking, Securities, Banking Union, Capital Markets Union, Regulation and Supervision, Financial Stability, Eurofi, SRB