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The essay argues forcefully that the political decision to initiate banking union was the decisive factor behind the ECB’s OMT programme, which put an end to the most acute phase of the euro area crisis, and that it also enabled the shift in the European approach to banking crisis resolution from bail-out to bail-in, which was prevented by the earlier policy framework of national banking supervision. In this sense, the banking union decision of mid-2012 was the crucial and largely unrecognized turning point of the entire euro area crisis.
The transfer of supervisory authority over all euro-area banks to the ECB, effective since last November, marks a profound change and is already resulting in more rigorous and consistent supervision.
After a few years of transition, the banking union framework can be expected to lead to a better integrated, more diverse and more resilient European financial system. It will also enhance European influence in shaping global banking regulatory standards and policies.