6. The ‘Game Changer’ in the Euro Area: Banking Union and Commercial Banking

S. Donnelly, Power Politics and the Undersupply of Financial Stability in Europe, Review of International Political Economy, 2014, 21 (4), 980–1005; S. De Rynck, Banking on a Union: The Politics of Changing Eurozone Banking Supervision, Journal of European Public Policy, 2015, 23 (1), 119–135; R. Epstein, and M. Rhodes, The Political Dynamics behind Europe’s New Banking Union, West European Politics, 2016, 39 (30), 415–437; G. Glöckler, J. Lindner, and M. Salines, Explaining the Sudden Creation of a Banking Supervisor for the Euro Area, Journal of European Public Policy, 2016, 24 (8), 1135–1153; D. Howarth, and L. Quaglia, The Political Economy of Banking Union, Oxford: Oxford University Press, 2016; D. Howarth, and L. Quaglia, Internationalized Banking and National Preferences on European Central Bank Supervision, West European Politics, 2016, 39 (3), 438–461; B. Nielsen, and S. Smeets, The Role of the EU Institutions in Establishing the Banking Union. Collaborative Leadership in the EMU Reform Process, Journal of European Public Policy, http://​dx.​doi.​org/​10.​1080/​13501763.​2017.​1285342; D. Schaffer, A Banking Union of Ideas? The Impact of Ordoliberalism and the Vicious Circle on the EU Banking Union, Journal of Common Market Studies, 2016, 54 (4): 961–980; F. Schimmelfennig, A Differentiated Leap Forward: Spillover, Path-dependency, and Graded Membership in European Banking Regulation, West European Politics, 2016, 39 (30), 483–502; M. Skuodis, Playing the Creation of the European Banking Union: What Union for Which Member States, Journal of European Integration, 2017, http://​dx.​doi.​org/​10.​1080/​07036337.​2017.​1404056.

The doom loop, which came to the fore during the sovereign debt crisis, was a vicious link between ailing banks and fiscally weak sovereigns in the euro area periphery. In fact, the deterioration in the market for government bonds of countries hit by the sovereign debt crisis weakened the capital position of their domestic banks because the latter had been accumulating a significant amount of national government bonds on their balance sheets. At the same time, the increasing fragility of banks in the Eurozone periphery put a drag on the government’s fiscal position by raising the prospect of a government intervention to rescue ailing banks, W. Schelkle (2017) The Political Economy of Monetary Solidarity: Understanding the Euro Experiment, Oxford: Oxford University Press.

The single rule-book is often considered as a further pillar of Banking Union. However, the rule-book applies to the entire EU, not only the euro area, and was established prior to Banking Union in the context of the single market in finance.

D. Howarth, and L. Quaglia, The Political Economy of Banking Union, Oxford: Oxford University Press, 2016.

Ibid.

A. Spendzharova (2014). Banking Union under Construction: The Impact of Foreign Ownership and Domestic Bank Internationalization on European Union Member-States’ Regulatory Preferences in Banking Supervision, Review of International Political Economy, 21 (4), 949–979.

See: S. De Rynck, Banking on a Union: The Politics of Changing Eurozone Banking Supervision, Journal of European Public Policy, 2015, 23 (1), 119–135; S. Donnelly, Power Politics and the Undersupply of Financial Stability in Europe, Review of International Political Economy, 2014, 21 (4), 980–1005; R. Epstein, and M. Rhodes, The Political Dynamics behind Europe’s New Banking Union, West European Politics, 2016, 39 (30), 415–437.

D. Howarth, and L. Quaglia, The Political Economy of Banking Union, Oxford: Oxford University Press, 2016.

B. Nielsen, and S. Smeets, The Role of the EU Institutions in Establishing the Banking Union. Collaborative Leadership in the EMU Reform Process, Journal of European Public Policy, http://​dx.​doi.​org/​10.​1080/​13501763.​2017.​1285342.

D. Howarth, and L. Quaglia, The Political Economy of Banking Union, Oxford: Oxford University Press, 2016.

Ibid.

At the start of 2020, approximately 117 banks were subject to direct ECB supervision (the so-called ‘significant banks’) (ECB 2019), which accounted for approximately 82% of the assets of euro area banks (Institut Montaigne 2021). Bulgaria and Croatia joined the SSM in October 2020. Their entry meant that more significant banks were added (five Bulgarian banks and eight Croatian banks).

European Central Bank, Asset Quality Review: Phase 2 Manual, 2014, March, Frankfurt.

European Central Bank, Guide to Banking Supervision, 2014, November, Frankfurt.

For a detailed analysis, see J. Gren, Doctoral Thesis, 2017, University of Luxembourg.

Z. Kudrna. Financial Market Regulation: Crisis-Induced Supranationalization. Journal of European Integration 38 (3), 2016: 251–264.

L. Quaglia, The politics of an ‘incomplete’ Banking Union and its ‘asymmetric’ effects’, Journal of European Integration, 2019, 41 (8), 955–969.

For more details see L. Quaglia, and A. Verdun, Explaining the Response of the ECB to the Covid-19 Related Economic Crisis: Inter-crisis and Intra-crisis Learning, Journal of European Public Policy, 2022, 30 (4): 635–654.

A. Enria, Flexibility in Supervision: How ECB Banking Supervision is Contributing to Fighting the Economic Fallout from the Coronavirus, 27 March 2020.

Ibid.

A. Enria, Opinion Piece, published in Les Echos, Expansión, Frankfurter Allgemeine Zeitung, Phileleftheros, La Stampa and Ta Nea on 30 March 2020, in Jornal de Negócios on 31 March 2020, in the Times of Malta on 1 April 2020 and in Latvijas Avīze on 3 April 2020.

A. Enria, Flexibility in Supervision: How ECB Banking Supervision is Contributing to Fighting the Economic Fallout from the Coronavirus, 27 March 2020.

A. Enria, Opinion Piece, published in Les Echos, Expansión, Frankfurter Allgemeine Zeitung, Phileleftheros, La Stampa and Ta Nea on 30 March 2020, in Jornal de Negócios on 31 March 2020, in the Times of Malta on 1 April 2020 and in Latvijas Avīze on 3 April 2020.

A. Enria, Flexibility in Supervision: How ECB Banking Supervision is Contributing to Fighting the Economic Fallout from the Coronavirus, 27 March 2020.

K. af Jochnick, COVID-19: Recovery and Regulatory Response, the IIF 7th Annual European Banking Union Colloquium, 17 November 2020.

K. af Jochnick, Speech at the Financial Stability Conference 2021, Berlin, 19 November 2021.

K. af Jochnick, COVID-19: Recovery and Regulatory Response, the IIF 7th Annual European Banking Union Colloquium, 17 November 2020.

K. af Jochnick, Speech at the Financial Stability Conference 2021, Berlin, 19 November 2021.

L. Quaglia, and A. Verdun, The European Central Bank, the Single Supervisory Mechanism and the Covid-19 Related Economic Crisis: A Neofunctionalist Analysis, Journal of European Integration, 2023.

A. Enria, Opinion Piece, published in Les Echos, Expansión, Frankfurter Allgemeine Zeitung, Phileleftheros, La Stampa and Ta Nea on 30 March 2020, in Jornal de Negócios on 31 March 2020, in the Times of Malta on 1 April 2020 and in Latvijas Avīze on 3 April 2020.

A. Enria, Flexibility in Supervision: How ECB Banking Supervision is Contributing to Fighting the Economic Fallout from the Coronavirus, 27 March 2020.

A. Enria, Interview with Andrea Enria, Chair of the Supervisory Board of the ECB, Supervision Newsletter, 13 May 2020.

A. Enria, Interview with Andrea Enria, Chair of the Supervisory Board of the ECB, Supervision Newsletter, 13 May 2020; K. af Jochnick, COVID-19: Recovery and Regulatory Response, the IIF 7th Annual European Banking Union Colloquium, 17 November 2020.

Ibid.