Banking union: reducing the risk of a new financial crisis
More work is still needed to prevent future financial crises. MEPs have adopted plans to further reinforce the eurozone's banking union.
The global financial crisis sparked many new political initiatives aimed at preventing and containing future crises. In Europe, where it became a banking and sovereign debt crisis, it led among other things to the creation of the banking union in the eurozone. European leaders agreed that the European Central Bank (ECB) should supervise the eurozone’s most important lenders, to create a single rulebook and centralise funds to deal with future banking crises.
But more work is needed for the banking union’s completion.
Bailing out banks
On 16 April MEPs adopted two reports on bank bailouts by Swedish EPP member Gunnar Hökmark, which say that in the event of a crisis EU countries need to ensure that financial institutions can absorb sufficient losses, so that they will have a minimum impact on financial stability and on taxpayers. Timely clarity is needed, the reports say, to ensure certainty for the markets and allow for a build-up of necessary buffers.
“The new requirements will reduce risks in the financial system, but at the same time, we managed to ensure that banks can play an active role in financing investments and growth,” said Hökmark.
The reports also highlight the importance of having competent authorities with early intervention powers, so that they can help an institution in a deteriorating financial situation.
Reducing risks
Another two reports by German S&D member Peter Simon stress that the completion of the banking union is necessary to create cross-border markets where customers can benefit from the positive effects of an integrated European banking system. At the moment it's more attractive for a bank in the eurozone to focus on its domestic market than it is to expand in another EU country.
“The diversity of the European banking sector is protected by reducing the bureaucratic burden for small, regional and risk-averse European banks that cannot afford large compliance departments or external advisors,” said Simon.
The German MEP also wants the ECB's European Systemic Risk Board to play a bigger role in coordinating with EU countries on the measures to take when risks in the financial sector are systemic. The financial crisis in Europe showed that authorities’ policies to prevent and address institutions' imbalances were inadequate.
“Parliament was successful in ensuring that banks will have to assess risks related to the environment and social issues in the future and take measures to address such risks appropriately,” said Simon. “This will clearly create a more sustainable financial sector and enshrine sustainability in banking in the EU.”
Next steps
During the next parliamentary term, the EU institutions will continue working on what the European deposit insurance scheme should look like in order to complete the banking union.
Find out more
- Press release: Parliament approves rules to reduce risks to EU banks and protect taxpayers (16 April 2019)
- Capital requirements regulation
- Capital requirements directive
- Loss-absorbing and recapitalisation capacity for credit institutions and investment firms
- Loss-absorbing and recapitalisation capacity of credit institutions and investment firms and amending directive
