European banking union
In several countries, private debts arising from a property bubble were transferred to the respective sovereign as a result of banking system bailouts and government responses to slowing economies post-bubble.
[citation needed] The earliest recorded public use[7] of the expression "banking union" in the Eurozone crisis context was in an article by scholar Nicolas Véron published near-simultaneously by Bruegel, the Peterson Institute for International Economics and VoxEU.org (a website of CEPR) in December 2011.
[12] The integration of bank regulation has long been sought by EU policymakers, as a complement to the internal market for capital and, from the 1990s on, of the single currency.
On 17 April 2012, IMF managing director Christine Lagarde renewed the institution's earlier calls for banking policy integration by specifically referring to the need for the euro monetary union to be "...supported by stronger financial integration which our analysis suggests be in the form of unified supervision, a single bank resolution authority with a common backstop, and a single deposit insurance fund.
[17] Another milestone was the report delivered on 26 June 2012, by European Council President Herman Van Rompuy, which called for deeper integration in the Eurozone and proposed major changes in four areas.
Second, the proposals for a fiscal union included a strict supervision of eurozone countries' budgets, and calls for eurobonds in the medium term.
The latter is generally envisioned as giving supervisory powers to the European Parliament in financial matters and in reinforcing the political union.
The summit's brief statement, published early on 29 June, began with a declaration of intent, "We affirm that it is imperative to break the vicious circle between banks and sovereigns," which was later repeated in numerous successive communications of the European Council.
Europe's banking union has been identified by many analysts and policymakers as a major structural policy initiative that has played a significant role in addressing the Eurozone crisis.
The banking groups designated by the SSM as "significant institutions", including all those with assets greater than 30 billion euros or 20% of the GDP of the member state where they are based, are directly supervised by the ECB.
[34] If problems are found, the ECB will have the ability to conduct early intervention in the bank to rectify the situation, such as by setting capital or risk limits or by requiring changes in management.
Significantly, since this EU Regulation is based on Article 127(6) TFEU, it was adopted by unanimity of the Council, with only a consultative role for the European Parliament.
[37][38] The Parliament voted in favour of the SSM and EBA Regulations on 12 September 2013,[34] and the Council of the European Union gave their approval on 15 October 2013.
[41][42][43] A key motivation is to alleviate the impact of failing banks on the sovereign debt of individual states and thus to mitigate the bank-sovereign vicious circle.
From the start in early 2012, advocates of banking union have insisted on the need to set up a European deposit insurance in order to break the bank-sovereign vicious circle.
[56] This component of the banking union has been initially more controversial than the SSM or SRM, however, because of the strong signal it entails of cross-border risk-sharing.
[58] One reason for the failure of the EDIS proposal is that it embedded an imbalanced approach to breaking the bank-sovereign vicious circle, as it only tackled one key component of that vicious circle – the fact that deposit insurance is only provided at the national level – while leaving intact another one – namely, the continued existence of concentrated domestic sovereign exposures in most euro-area banks, or in other words, the fact that euro-area banks appear to give preference to their home country in their allocation of credit to governments despite the absence of exchange rate risk within the monetary union.
The financial and political salience of this challenge, widely referred to as "regulatory treatment of sovereign exposures" (RTSE), was not immediately recognized in the early debates about the banking union.
In 2015-2016 a high-level working group of the EFC chaired by Per Callesen [dk][59] explored options to tackle concentrated exposures, but no consensus was achieved and the final report was not made public.
The link between the two themes of European deposit insurance and RTSE has been acknowledged by EU officials[60] and embedded in negotiating frameworks of the council.
[65] Bulgaria sent a letter to the Eurogroup in July 2018 on its desire to participate in ERM II, and commitment to enter into a "close cooperation" agreement with the Banking Union.
[76] Although the Ministry of Justice found that the move did not entail any transfer of sovereignty and thus would not automatically require a referendum, the Danish People's Party, Red Green Alliance and Liberal Alliance oppose joining the European Banking Union and collectively the three won enough seats in the subsequent June 2015 election to prevent the Folketing (the Danish parliament) from joining without the approval through a referendum.
As we saw after 2008, a financial crisis can have a severe impact on the economic infrastructure most of us rely on: investments, mortgage loans, business growth opportunities, employment, and government revenue and expenditure.
A single, powerful resolution authority would then be better equipped to minimise the adverse effects on the economy and the financial system without the use of public funds.
In addition, there is still uncertainty concerning how the new Basel recommendations will be implemented in the EU, which can have significant impact on the framework conditions for the Danish financial sector, regardless of whether we participate in the Banking Union or not.
Nordea's chairman of the board, Björn Wahlroos, stated that the bank wanted to put itself "on a par with its European peers" in justifying the relocation from Stockholm to Helsinki.
Swedish Finance Minister Madgalena Andersson stated: “You can't ignore the fact that the decision-making can be a little problematic for countries not in the eurozone.”[82]
