The European Banking Disunion

The European Banking Union?

The European banking disaster of 1931 was exactly the other way round.

In June 2012, eurozone leaders announced their intention to establish a European banking union. The euro, they said, had to be buttressed by transferring banking supervision to a European authority.

These limits on American banking persisted until the 1990 s, when Congress repealed most of this regulatory structure.

A European banking union with joint liability cannot be put off much longer.

That is not the outcome favored by the European Commission, which has only just set up the European Banking Authority.

In June 2012, eurozone leaders announced their intention to establish a European banking union.

The latest bonus rules issued by the Committee of European Banking Supervisors (soon to morph into the European Banking Authority), have left those sensitive souls on the trading floors feeling rather bruised and unloved.

So, the US banking system is effectively insolvent in the aggregate most of the British banking system looks insolvent, too, as do many continental European banks.

This requires implementing a fully fledged banking union with a pan European supervisor and a strong regime for banking resolution and deposit insurance as soon as possible.

And spillover effects from Greece will continue to affect Balkan and other emerging European banking markets.

But the European Banking Federation has dug in its heels, describing the recommendations as completely unnecessary.

The euro, they said, had to be buttressed by transferring banking supervision to a European authority.

Other terms include parallel banking, underground banking and ethnic banking.

Owing to the former, the risks to Asia from a European banking crisis cannot be taken lightly.

If the idea of a European banking union is serious, now is the moment to advance it.

Moreover, a full European banking union with shared resources for resolution should be created without further delay.

And a fragmented European banking system remains one of the weakest links in the regional daisy chain.

The irony is that Congress took up the big banks offer to separate commercial and investment banking, but then enacted deposit insurance anyway.

The latest example highlighting this flaw is Dexia, the Belgian French banking group that failed in 2011 just after passing the European Banking Authority s stress test with flying colors.

A key characteristic of the European crisis has been the strong correlation between banking stress and sovereign distress.

But the European Union collectively has roughly 30 of the votes at the IMF, and can effectively veto a more forceful approach to the European banking system.

The emerging banking union is not only the first step toward a European fiscal union it is also the final step toward completing the European common market.

The proposed construction of a banking union reveals this fundamental flaw at the heart of the European project today.

Likewise, common European banking supervision will not suffice to prevent the continuing exodus of funds from the afflicted countries.

The second round of stress tests by the European Banking Authority is ostensibly designed with this end in mind.

And, while European Union leaders have issued proposals for a banking and fiscal union, now Germany is pushing back.

At the same time, the European Central Bank unleashed its 1 trillion ( 1.3 trillion) long term refinancing operation, which pulled the European banking system back from the brink.

Banking

Banking!

The European banking system must be turned into a banking union with the ECB responsible for prudential supervision. The fiscal compact must be implemented quickly, and progress on harmonizing fiscal policies should continue.

This likely outcome mirrors the initiative for a European or global banking fund to insure against the next financial crisis.

The eurozone needs a banking union a European deposit insurance scheme in order to stem capital flight, a European source for financing bank recapitalization, and eurozone wide supervision and regulation.

It could agree to swift bank recapitalization, a banking license for the European Stability Mechanism, and a more expansionary ECB policy.

The European Central Bank has been more thoughtful, though no less enthusiastic, arguing that a banking union should have three objectives.

But Europe s policymakers claim to be making progress toward a so called banking union, which means collective banking supervision, rather than a merger of banks themselves. In September, the European Commission announced a plan to make the European Central Bank the supervisor of all 6,000 of Europe s banks.

Lemon Banking

I. Banking

H. Banking

Given the global menace posed by Europe s sovereign debt and banking crises, measures to strengthen the European banking system and encourage fiscal integration gained some momentum at the recent G 20 summit in Los Cabos, Mexico.

National banking systems should be unified, in order to separate private losses from sovereign debt, with centralized supervision and resolution authorities, as well as a deposit insurance scheme, forming the core of a European banking union.

The recently created European Banking Authority has only limited powers over national supervisors, whose daily work is guided mainly by national considerations.

Every week more liquidity is injected into the global banking system by the United States Federal Reserve and the European Central Bank.

First, the identity of the single European banking supervisor remains undecided, and the ECB has seen an opportunity for a power grab.