Towards a European Banking Union: challenges and perspectives

The creation of a European banking union is a necessary step to emerge from the financial crisis and strengthen Europe’s weakened banking system. Though marked by doubts and uncertainties, EU member states and especially Eurozone countries, which, in this case, appear willing to sacrifice some elements of their sovereignty, view the granting of greater powers to the European Central Bank (ECB) in a positive light. While progress towards a full political Union in Europe remains sluggish at best, the Banking Union is viewed as an element of hope across Europe given that it will complement the monetary Union and work towards the creation of a full economic Union, which many hope will aid in lifting Europe out of the crisis.

Ettore Greco, director of the Istituto Affari Internazionali (IAI), introduced these thoughts in his opening remarks at the third meeting of a conference cycle focused on the future of the European economy. Organized by IAI and the Centro Studi Sul Federalismo (CSF), the conference took place in the media room of the Monte dei Paschi di Siena bank on Tuesday 5^th of March.

The themes of the conference, ranging from the different approaches of EU member states to the increased integration of banking systems, the role of the European governance and the impact of new regulations, were debated by the discussants: Lorenzo Bini Smaghi, former member of the executive committee of the ECB, now visiting senior fellow at IAI; Ignazio Angeloni, director general for financial stability at the ECB; Stefano Micossi, general director of Assonime; and Flavio Valeri, chief country officer for Italy at Deutsche Bank.

Bini Smaghi underlined the importance of establishing a unified supervision of the European banking system, given that, as a result of the deeply interconnected nature of European markets, a crisis hitting one bank can have adverse effects on the entire system. According to the former ECB member, governments, parliamentarians and citizens must today be convinced of the necessity to transfer the powers of national oversight to a central, supranational, institution.

Ignazio Angeloni retraced the various stages that have led the EU towards the adoption of a banking union: the 2012 general indications that emerged from the European Commission’s proposal; the decisions that are expected to be made by mid-2013; and the entering into effect of the agreement in 2014. He explained that the European supervisory body must have “all the powers that a modern supervisory body is expected to have”: ranging from the authority to independently verify capital reserves, to the imposition of sanctions on banks that do not comply with the rules of the game and the withdrawal of banking licences.

The European supervision mechanism will be based on the integration of decision-making powers, which will flow to the central authority, while the technical and analytical side of the instrument will remain at the national level. Micossi and Valeri’s discussion gave rise to some criticism and perplexity about the new banking union; however these emerged against the backdrop of an ultimately positive evaluation of its benefits. One possible risk relates to the lack of a truly European authority that possesses the necessary funds and resources needed to control financial crises similar in scope to the one that Europe is hopefully emerging from today.