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The Banking Union is an essential pillar of the EU’s Economic and Monetary Union. In recent times it has become clear that it is a strength of the entire European economic system, vital for mitigating the impact of negative contingencies of the economic cycle.
The conclusions of the European Council on the possibility for the Commission to receive empowerment “to borrow funds on behalf of the Union on the capital markets” are one more step into the direction of a more integrated European financial system. However, the Banking Union is still not completed and not as resilient and weather-proof as one would wish.
Recently, the European Liberal Forum published a Discussion Paper which addresses technical questions concerning the state of the art of the European Banking Union system, examining the various proposals to counter the crisis and the possible use of complex analysis from the world of artificial intelligence to prevent crisis at micro-level.
Graham Bishop's contribution focussed on these areas:
· The financial markets are signalling that the EU banking system is in serious trouble.
· The ECB can provide liquidity but the loan losses may erode capital significantly – a different problem altogether
· The Next Generation project can provide “safe assets” for banks to reduce their dependence on their home sovereign – the much-discussed Doom Loop
· But it will not be big enough, or have the appropriate maturity structure, to remove all the risks
· However, the change in EU governance from consensus to QMV may also eventually herald the completion of the banking union with EDIS.