The crisis has highlighted the need for, and difficulties with, a Eurozone banking union. This column argues that, to make a union, you need three crucial ingredients: common supervision, a single resolution mechanism, and common safety nets. The power to control and the resources to rescue must work in parallel. Eurozone leaders have taken the first critical steps, but further progress is needed to strengthen the financial architecture of the single currency.
The EU is planning to harmonise data protection. This column balances the benefits of harmonisation against the estimated costs to business – especially small and medium-sized enterprises – and the macroeconomic costs more generally. The net compliance costs will perhaps be larger than the EU predicts.
Will bank supervision in Ohio and Austria be similar? A transatlantic view of the Single Supervisory Mechanism
The euro cannot have a centralised monetary authority and decentralised bank supervision. This column draws on US banking history, detailing how a banking crisis in the nineteenth century led to the creation of dual systems of bank supervision. The US system was imperfect, and the central role and powers of the ECB within the Single Supervisory Mechanism will be to limit the weaknesses of a dual system of supervision. Despite this, hazards remain. For those looking for a guide to the potential threats to financial stability under this system, understanding the US experience is relevant.
The EU was once a champion of global financial regulatory convergence. What happened? This column argues that the EU should drop its lacklustre inertia and pursue Basel III because, in the end, it’s in its interests to comply. EU policymakers ought to aim at enabling the adoption of a Capital Requirements Regulation that would be fully compliant with Basel III.
So far, discussions around Europe’s prospective banking union have focused only on the supervision of banks. This column argues that policymakers must also think about the resolution of banks in distress. While national governments confine themselves to the domestic effects of a banking failure, a European Resolution Authority could incorporate domestic and cross-border effects. A cost-benefit analysis of a hypothetical resolution of the top 25 European banks shows that the UK, Spain, Sweden, and the Netherlands would be the main winners.
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Baldwin, Kawai, Wignaraja, 11 June 2013
Giavazzi, Portes, Weder di Mauro, Wyplosz