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Europe’s radical banking union

Bruegel scholar Nicolas Véron argues in this thought-provoking essay that banking union ultimately enabled the European Central Bank’s announcement that it would buy large quantities of government bonds if needed and on the condition of a financial support programme.

By: Date: May 5, 2015 European Macroeconomics & GovernanceFinance & Financial Regulation Tags & Topics

Banking Union, even in its current incomplete form, is the single biggest structural policy success of the EU since the start of the financial crisis. This essay presents the sequence of events that led to its inception in late June 2012 and takes stock on its current status of implementation and prospects.

The essay argues forcefully that the political decision to initiate banking union was the decisive factor behind the ECB’s OMT programme, which put an end to the most acute phase of the euro area crisis, and that it also enabled the shift in the European approach to banking crisis resolution from bail-out to bail-in, which was prevented by the earlier policy framework of national banking supervision. In this sense, the banking union decision of mid-2012 was the crucial and largely unrecognized turning point of the entire euro area crisis.

The transfer of supervisory authority over all euro-area banks to the ECB, effective since last November, marks a profound change and is already resulting in more rigorous and consistent supervision.

After a few years of transition, the banking union framework can be expected to lead to a better integrated, more diverse and more resilient European financial system. It will also enhance European influence in shaping global banking regulatory standards and policies.

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Policy Contribution

coverEuropean Parliament

Total assets versus risk weighted assets: does it matter for MREL?

As a consequence of the global financial crisis, various initiatives have been taken in different jurisdictions to ensure the future resolvability of banks without massive use of public funds. In Europe, the BRRD introduced the concept of MREL, which is in the process of being defined.

By: Bennet Berger, Pia Hüttl and Silvia Merler Topic: European Parliament, Finance & Financial Regulation Date: August 9, 2016
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Financial Stability Conference 2016

How can we fix the deficiencies in the EU financial system? Bank-state-nexus, business models and the missing level playing field

Topic: Finance & Financial Regulation Location: ESMT, Schlossplatz 1, 10178 Berlin
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Blog Post

Silvia Merler

Italy’s bail-in headache

Weakness in the Italian banking sector is a major concern for the euro area. Retail investors stand to lose out if BRRD bail-in rules are strictly applied, and many in Italy are seeking an exception for political reasons. However, Silvia Merler argues that this would set a dangerous precedent. She calls for an orderly bail-in, followed by compensation for investors mis-sold unsuitable products.

By: Silvia Merler Topic: Finance & Financial Regulation Date: July 19, 2016
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Blog Post

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Losing “EU passport” would damage City of London

If the UK cannot secure a “Norway” deal and stay within the internal market, the UK will lose the passporting rights which make London attractive as a financial centre. The macroeconomic fall-out from Brexit has also damaged the performance of banks and insurers.

By: Dirk Schoenmaker Topic: Finance & Financial Regulation Date: June 28, 2016
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Past Event

Past Event

European banking supervision: the first eighteen months

After its first 18 months, how has the SSM affected the European banking system?

Speakers: Mario Nava, Dirk Schoenmaker, Nicolas Véron, Pieter Verheugd and Guntram B. Wolff Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 14, 2016
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Past Event

Past Event

The Spanish financial crisis: Lessons for the European banking union

Spain is among the countries still recovering from the financial crisis. While misjudged investments were part of the cause, these past mistakes could offer lessons for the European banking union.

Speakers: Miguel Otero-Iglesias, Federico Steinberg, Pia Hüttl and Stefano Neri Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 9, 2016
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Blog Post

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Nicolas Véron

European banking supervision: compelling start, lingering challenges

The new European banking supervision system is broadly effective and, in line with the claim often made by its leading officials, tough and fair, but there are significant areas for future improvement.

By: Dirk Schoenmaker and Nicolas Véron Topic: Finance & Financial Regulation Date: June 8, 2016
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Blueprint

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European banking supervision: the first eighteen months

The Blueprint provides a review of the first 18 months of European banking supervision. It reviews the overall situation and the situation in a number of euro-area countries. It provides important insights into the start of a new policy regime that involves profound change for the European banking landscape

By: Dirk Schoenmaker and Nicolas Véron Topic: Finance & Financial Regulation Date: June 8, 2016
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Guntram B. Wolff
European Parliament

The European Deposit Insurance Scheme

Statement prepared for the European Parliament’s ECON Committee Public Hearing of 23 May.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance, European Parliament, Parliamentary Testimonies Date: May 23, 2016
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Blog Post

Silvia Merler

Italy's Atlas bank bailout fund: the shareholder of last resort

Italy’s new bank fund Atlas might be what is needed in the short run, but in the longer term the fund will increase systemic risk. What ultimately matters is how this initiative will affect the quality of bank governance, a key issue for the future resilience of the system.

By: Silvia Merler Topic: Finance & Financial Regulation Date: April 22, 2016
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Blog Post

jaume

Are regional governments causing deficit overshooting in Spain?

Spain once again missed its deficit target in 2015 and it seems unlikely that 2016 will be any better. The central government has pointed to regional deficits as being the cause of the fiscal slippage. However, regional governments claim that their deficit is due to under-financing and overly strict deficit targets.

By: Jaume Martí Romero Topic: European Macroeconomics & Governance Date: April 19, 2016
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Opinion

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Beatrice Weder di Mauro
Guntram B. Wolff

Mere criticism of the ECB is no solution

What would happen if the ECB failed to respond to the excessively low inflation and the weak economy? And what economic policy would be suitable under the current circumstances, if not monetary policy?

By: Marcel Fratzscher, Reint Gropp, Hans-Helmut Kotz, Jan Krahnen, Christian Odendahl, Beatrice Weder di Mauro and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: April 10, 2016
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