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2016 | Book

Introduction Read chapter Read first chapter

The European Banking Union

A Critical Assessment

Author: Angelo Baglioni

Publisher: Palgrave Macmillan UK

Book Series : Palgrave Macmillan Studies in Banking and Financial Institutions

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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About this book

Why did European policy-makers introduce the Banking Union? Which are its main features? How does it affect banks and their customers? This book tries to answer these questions, by providing a clear description of the building blocks of the banking union, and by discussing the issues that still remain unanswered.

Table of Contents

Frontmatter
Chapter 1. Introduction
Abstract
This chapter provides a synthetic overview of the basic motivations behind the European banking union, and of the state of play in the implementation of this ambitious project. The three pillars of the project are the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM), and the European Deposit Guarantee Scheme (EDGS). Despite the relevant progress made, the implementation of the project is still halfway. The motivation for this book is twofold: (1) describe the new institutional framework and assess its implications for the banking system and (2) provide a critical view of the state of play of the banking union. The Introduction sketches the outline of the book.
Angelo Baglioni
Chapter 2. Three Reasons for the European Banking Union
Abstract
This book starts by examining the reasons behind the introduction of the European banking union. This chapter documents the fiscal cost of the financial crisis that started in 2007, which has been the main driver, inducing the eurozone governments to assign the ECB the task of implementing tough and uniform standards of supervision. The declared target of the policymakers is to break the vicious circle between bank and sovereign risks; this two-way link emerges by looking at the market price of risk for the two sectors. Finally, the chapter shows the need for a supervisory convergence among the European countries and for a common framework for resolving distressed banks.
Angelo Baglioni
Chapter 3. The Single Supervisory Mechanism
Abstract
This chapter describes the new architecture of banking supervision, going into the organizational details of the Single Supervisory Mechanism (SSM). The new governing bodies of the ECB and its decision-making process are introduced. The distinction between significant and less significant banks plays a key role in the organization of the SSM. As far as significant banks are concerned, the Joint Supervisory Teams (JSTs) are at the core of the supervisory activity. Some controversial issues are discussed, like the separation between prudential supervision and monetary policy, the balance of powers between the ECB and the national authorities, the discretionary approach based on the SREP, and the lack of a single authority responsible for the macro-prudential supervision.
Angelo Baglioni
Chapter 4. The Comprehensive Assessment
Abstract
The first important action taken by the ECB, as banking supervisor, has been the Comprehensive Assessment, where 130 banks have been examined through an AQR and a Stress Test. The main features and outcomes of this exercise are described in this chapter. The ECB’s methodology has raised some controversies, which are addressed here. The main criticism derives from its focus on the CET1 ratio as the only indicator of bank solvency; the CET1 ratio should be complemented with a simple leverage index, which is less prone to manipulations and national biases. The other main limitation is the micro-prudential approach; the inclusion of systemic risk into the adverse scenario may lead to a considerable improvement of the stress test methodology.
Angelo Baglioni
Chapter 5. The Single Resolution Mechanism
Abstract
This chapter addresses the second pillar of the banking union, namely the Single Resolution Mechanism (SRM). First, it outlines the main innovations introduced by the BRRD, introducing a new regime for crisis management in the EU. Second, it analyzes the organization and funding sources of the SRM, affecting the euro area. Some controversial issues are discussed, like the bail-in principle, the governance of the SRM, the possible role of the European Stability Mechanism (ESM) as a fiscal backstop, and the interplay between the SRM and the state aid rules. The analysis made in this chapter suggests several lines of reform to improve and complete the current design of the SRM.
Angelo Baglioni
Chapter 6. The Missing Pillar: A European Deposit Insurance
Abstract
The European Deposit Guarantee Scheme (EDGS) is the missing pillar of the banking union. The 2014 Directive has introduced several innovations that are described in this chapter. Among them, the most relevant is the requirement that the deposit guarantee schemes (DGS) should be funded ex ante by raising risk-based insurance premiums. However, that Directive is still aimed at harmonizing the national guarantee schemes, rather than pointing to some integration among them. Looking forward, the best way to proceed is not by creating a new European institution, responsible for deposit insurance, but rather by expanding the scope of the SRM, thus going toward an integrated resolution and deposit insurance agency.
Angelo Baglioni
Chapter 7. Summary and Conclusions
Abstract
This concluding chapter summarizes first the main motivations and features of the European banking union, emerging from the legal framework and from the first couple of years of experience (including the comprehensive assessment carried out in 2014). Then, it reviews some critical issues that have been discussed in the previous chapters, drawing some policy implications. The main areas, where the design of the banking union needs to be improved and completed, are the following: (1) the attribution of the macro-prudential supervision, (2) the methodology of the asset quality review and of the stress test, (3) the application of the bail-in rule, (4) the governance and funding tools of the SRM, and (5) the way to proceed toward a European deposit insurance scheme.
Angelo Baglioni
Backmatter
Metadata
Title
The European Banking Union
Author
Angelo Baglioni
Copyright Year
2016
Electronic ISBN
978-1-137-56314-9
Print ISBN
978-1-137-56313-2
DOI
https://doi.org/10.1057/978-1-137-56314-9