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The root of the word crisis is in the ancient Greek verb κρίνω, which means to separate, choose, judge. It indicates a turning point, for instance in a disease. Andrea Enria is convinced that the hesitations and the delays in dealing with the banking crisis in the European Union have their origin in the difficulty of acknowledging the pitfalls in the institutional framework, the specific complication coming from our imperfect set up. For a long time, each Member State has been looking at the problem through the lenses of national interest. The judgement was obfuscated and we didn’t manage to reach a true turning point.
The decision to tackle the institutional pitfalls and move to truly integrated European regulation, supervision and crisis resolution could be this turning point. But we still face many challenges in bringing forward the repair of the regulatory framework, of the banking sector and of the institutional set up. At this juncture, Andrea Enria believes the efforts should focus on three main objectives.
In the regulatory field, there should be aim at a rigorous completion of the Basel III package, which would give certainty to the restructuring process under way in the banking sector, and to the harmonisation of the framework for bank recovery and resolution, which is badly needed to give certainty to investors and depositors. In both areas, there is need to pursue uniform rules, a true Single Rulebook. National discretions in the rules on bail in, for instance, could crystallise the segmentation across national markets and unduly differentiate the banks’ cost of funding, also opening room to the use of the regulatory lever to favour national champions – a mistake which shouldn’t repeat.
As to the banking sector repair, the efforts need to concentrate on asset quality reviews, which dispel the remaining concerns on the permanence of pockets of vulnerabilities. The establishment of the Single Supervisory Mechanism will provide an opportunity for progress in this area.
Finally, the process of institutional repair needs to be completed, putting in place all the agreed elements of the Banking Union. In particular, in the next months, there have to be put efforts to establish a Single Resolution Mechanism. From the EBA perspective, it will be essential that the centralisation of responsibilities for supervision and resolution in the Member States that will join the SSM is accompanied by mechanisms that ensure a continued functioning of the Single Market for the entire Union. In particular, there is need to reverse the recent trend to segmentation of banking activities along national lines. Only by setting in place mechanisms that reassure all involved authorities that a cross-border group can be resolved in a coordinated fashion will we manage to remove the incentives to ring-fencing.