Having the necessary measures approved to complete the European Banking Union, can be regarded as a big step for the current legislature, which is due to be replaced in just a matter of weeks. By bringing EU banks together under a single supervisory institution, this recently approved legislation will lift the cost of rescuing a failing bank off the shoulders of taxpayers.
The idea of a European Banking Union came after the economic hardships brought on the Eurozone in the years following the European economic crisis. Indeed, the crisis has shown that the institutional framework of the Economic and Monetary Union was quite weak and thus the need for better measures were deemed necessary. In an attempt to restore investors' and citizens' faith in their banks, as well as to facilitate bank supervision and protect taxpayer money, the European Commission President proposed an integration of all EU banking sectors. This project for increased cooperation and coordination is also known as the banking union.
The three pillars of a true European Banking Union, according to Benoît Cœuré, Member of the Executive Board of the ECB, are (1) the Single Supervisory Mechanism (SSM); (2) the Single Resolution Mechanism (SRM); and (3) a common system of deposit protection. The establishment of a genuine banking union represents a fundamental step towards completing the architecture of Economic and Monetary Union.
The new Banking Union will allow the EU to help failing banks at an EU-level, thus making the use of taxpayers' money less likely. Apart from this, having a banking union will help in breaking the vicious circle between banks and sovereignty.
The EPP Group has emphasized that if there was a lesson to be learnt from the crisis, it was that taxpayers should not bear the costs of failing banks; but rather this burden should fall on creditors and shareholders. The EPP has always regarded a banking union as an essential factor in regaining trust in the banking sector which leads to further economic recovery. Thus, the European Parliament wanted to ensure that banks are treated in a uniform manner across Europe. Under the supervision of ECB, there exists a greater likelihood of maintaining a stable banking sector. Once this is achieved there will be increased potential for the creation of jobs and enhanced investment.
While the timeframe in which this mechanism was designed and approved appears to be fairly short, intense debates and discussions took place between all relevant authorities before an agreement was reached.
In 2012, the Commission issued a proposal to advance financial and banking integration at an EU level. This was deemed appropriate in order to strengthen the Economic and Monetary Union and work towards a single rulebook, the establishment of a single supervisory mechanism, and a single bank resolution mechanism.
In March 2013, the approval of a single supervisory mechanism represented an important step in the creation of the banking union. The designation of the European Central Bank as the single supervisor of all the credit institutions established within the euro area would ensure a coherent and consistent application of the Single rulebook in the region. The ECB was also charged with monitoring the national supervisors in charge of less significant banks.
By mid-2013 the second part of the Single Resolution Mechanism was presented. So in less than two years the banking sector was bound to be revolutionised.
Although having a banking union appears to be promising and it may bring along a number of potential benefits for the European economy, we must be cautious and attentive when it comes to the implementation of the legislative measures we have at hand. On paper, having a banking union can be considered as a successful achievement for the EU, however we must make sure that in practice it is properly implemented. Thus we can have a system which functions smoothly and which ensures that the European economy, and also European citizens, can fully benefit.