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Banking union is probably the flagship policy of Euro area financial integration in response to the 2008-10 Crash and most of it is already operational. The underlying political strategy to deal with the financial and economic problems is clear, even if contentious. Even at this late stage, could Brexit scupper the drive for `more Europe’ and thus de-rail the completion of banking union – a financial project to de-link governments from their banks?
Banking union is ambitious: underpin financial stability by transferring the responsibility for banking supervision (and resolution when necessary) to the European level. It will also weaken the nexus of sovereign debt and banking crises by separating any weakness of domestic government finances from spreading contagion to its entire banking system via large holdings of the government’s own debts. In addition, the banking union should reverse to some extent the fragmentation of financial markets in the euro area as depositors should no longer fear redenomination of their deposits, pushing banks to focus on their home markets.
Such are the aspirations. How close are we to reaching these goals? Banking union will be the capstone sitting on its three pillars: Supervision, resolution and deposit guarantees. [...]
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