Banking Union in Nine Questions Nicolas Vron Senior

Banking Union in Nine Questions Nicolas Véron Senior Fellow, Bruegel (Brussels) Visiting Fellow, Peterson Institute for International Economics (Washington DC) Rome, 30 September 2014 1

What is Banking Union? • Banking policy moves to European level • Two key pieces of legislation – Single Supervisory Mechanism (15 October 2013) – Single Resolution Mechanism (15 July 2014) • Single Rulebook – Capital & leverage, resolution, deposit insurance • Neither EMU nor Internal Market – but somewhere in between – also geographically (‘‘banking union area’’) 2

Why Banking Union? • Banking nationalism + EU integration – Pre-2007 build-up of systemic risk – Preference for bailouts in first 5 years of crisis • • • Escalating commitments of sovereigns Bank-sovereign vicious circle / breakup risk No consensus on fiscal union Banking union only remaining option The summit on 28 -29 June 2012 3

Why Is It Incomplete? • • Political resistance + ad hoc decision Not all EU countries Not all banks (small banks exempted) Not all components of banking policy – Resolution – Deposit insurance – Consumer protection, etc. 4

How Effective So Far? • Legislation adopted quickly • ECB preparation on track • Apparently good cooperation with existing national banking supervisors 5

AQR/Stress Tests Credible? • More than in 2010/2011 • Doubts remain – Technical / operational challenges – Tension with monetary policy / macro concerns – Institutional constraints • But only time will tell… • … and it may take a while into 2015 6

Helpful to Fight Crisis? • Massive impact already: enabler of OMT • Comprehensive Assessment: pending • Future removal of ring-fencing, home bias 7

Bank Restructuring Ahead? • • Until end-2015 Depending on Comprehensive Assessment Bail-in: probably only junior debt Joint management of banks/assets fallen under public control? • Keeping nationalism at bay 8

Medium-Term Impact? • • • Cross-border bank consolidation Development of de novo banks? Market discipline: senior debt bail-in? Development of non-bank finance Increasing cohesion within SSM Intra-EU & external prominence 9

Legislative Agenda? • • Single Rulebook, e. g. Bank Structure Accounting & Auditing Non-Banks e. g. CCPs Bank Insolvency Tax Global compliance (Basel III) Capital Markets Union Treaty Change 10

Thank You For Your Attention Nicolas Véron nicolas. veron@gmail. com +32 473 815 372 / +1 202 550 0614 Twitter @nicolas_veron 11