EU banking union remains incomplete – and it is likely that the absence of banking sector turmoil in the EU will mean that pre-existing political obstacles will continue to prevent its completion any time soon.
The collapses in rapid succession of Silicon Valley Bank (SVB) and Signature Bank in the United States, and of Credit Suisse in Switzerland, have reawakened debates on banking policy. In the United States, reports assessing what went wrong are expected from both the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) on 1 May. In Switzerland, the unorthodox engineering of Credit Suisse’s takeover by UBS has generated lawsuits and investigations.
By contrast, in the European Union as in the United Kingdom, there have been no visible signs of banking-sector weakness. Since more than nine-tenths of EU banking assets are in the euro area and under European banking supervision led by the European Central Bank (ECB), that counts as a success for the single supervisory mechanism – the main finished piece of the EU banking union project, on which the EU embarked in 2012. As emphasised by ECB Supervisory Board Chair Andrea Enria, in a 21 March speech, European supervisors have been focused on both interest-rate risk and business-model risk in recent years, two areas at the core of the SVB and Credit Suisse disasters. This stands in sharp contrast to the pre-2012 period, when banking supervisors in the EU looked unable to get anything right.
Meanwhile, EU banking union remains incomplete – and it is likely that the absence of banking sector turmoil in the EU will mean that pre-existing political obstacles will continue to prevent its completion any time soon. The two key stumbling blocks are a European deposit insurance scheme (EDIS), for which the Commission’s ill-fated proposal of 2015 has been left unadopted despite protracted negotiations, and the regulatory treatment of banks’ sovereign exposures (RTSE), which has been negotiated in parallel, outside of public view and also without concrete results.
On 16 June 2022, an acrimonious meeting of euro-area finance ministers in the Eurogroup format acknowledged the impasse. Ministers decided to shelve the discussions on EDIS and RTSE and asked the European Commission to make proposals on a more limited reform agenda of crisis management and deposit insurance (CMDI). In doing so, they admitted that the EU framework for the handling of unviable banks, which they had enshrined in 2014 in the bank recovery and resolution directive (BRRD, 2014/59/EU), had not worked as intended....
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