14 September 2022

Eurofi Article by Elke König - Banking Union: CMDI can build further on solid ground

In less than a decade, we have made significant steps with the first pillar of the Banking Union, the Single Supervisory Mechanism (SSM) established high supervisory standards right across the Banking Union, and enhanced the banks’ positions.

“Europe will not be made all at once, or according to a single plan. It will be built through concrete achievements which first create a de facto solidarity”.

These words, from the 1950 Schuman declaration, are still very pertinent today. As Chair of the Single Resolution Board (SRB), I have long wished to see the third pillar of the Banking Union, the common deposit insurance, EDIS becomes a reality. However, that plan is now on hold.

It seems as though Schuman could have been talking about the Banking Union way back in 1950 – for it appears that it will not be completed “all at once, nor according to a single plan”. The Eurogroup President, Paschal Donohoe, did his utmost to deliver a single Work Plan, yet the political dynamics meant that we will proceed one-step at a time, beginning with the review of crisis management and deposit insurance framework (CMDI).

As a premise to those steps, we should recognise that the Banking Union has already delivered much for financial stability.

In the past decade, the EU has faced several crises: most recently, Covid-19, and the Russian war in Ukraine. It is not by chance that our banks largely weathered the economic consequences well. The swift and coordinated fiscal and monetary response by the EU, national governments and central banks was key. Having the Banking Union and the Single Rule Book in place was an additional layer of comfort at this time.

In less than a decade, we have made significant steps with the first pillar of the Banking Union, the Single Supervisory Mechanism (SSM) established high supervisory standards right across the Banking Union, and enhanced the banks’ positions. [The latest stress test confirms this increased resilience].The second pillar, the Single Resolution Mechanism (SRM), led to banks becoming not only more resilient, but also more resolvable. The progress is clear: at the end of 2022, nearly all banks under our remit met their intermediate MREL targets. It is key that those resources can be reliably mobilized in a crisis.

The Single Resolution Mechanism was designed to deal with bank failures as efficiently as possible. The Sberbank and Banco Popular cases showed that, the SRB - in cooperation with the other authorities - could devise a solution that successfully achieved all resolution objectives including the protection of the taxpayer.

These are remarkable achievements for a relatively young Banking Union. However, we must be on our guard and make sure we don’t slide back on what we have already achieved. It took the U.S. over 80 years and multiple crises in order to arrive at its well-functioning bank failure management regime. Let us try and learn from them and others rather than try and go down the route of making every mistake for ourselves.

This does not make us complacent, but it should give enough confidence to legislators to use the upcoming CMDI review to take steps forward in enhancing the Banking Union tools and foster market integration while working towards an agreement on EDIS....

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