Banking union: protecting savers, strengthening banks

MEPs want to protect small savers and ensure the stability of the EU’s banking system in response to the financial crisis

The banking union  was created in the wake of the financial crisis and involves supervising the largest banks at EU level as well as ensuring that when banks go bankrupt, they do so at minimal cost for tax payers, while afecting the economy as little as possible.It is also about protecting smaller savers.

On 1 March MEPs adopted the annual report on the banking union, setting out what progress has been made.

The EU plans to base the banking union on three pillars:  supervision of the biggest European banks by the European Central Bank (ECB)a single resolution regime for banks in trouble and a common deposit insurance to protect small savers.

While the first two are already in place, agreement on the deposit insurance has not been reached yet.

Identifying risks to stability

Since the start of the financial crisis in 2008 more than 1,500 banks have closed in the EU. The ECB, as the supervisor of the EU’s largest banks, wants to make sure any risks to financial stability are addressed as quickly as possible.

For example, in June 2017 the ECB determined that two Italian banks were failing or likely to fail as they couldn’t raise enough capital to cover losses on their non-performing loans.

Belgian ECR member Sander Loones, who wrote the annual report on the banking union, said: “The ECB should improve the indicators that are being used to determine a potential deterioration in the financial condition of a bank.”

The stock of loans not being repaid in time amounted to €1 trillion in July 2017. Loones commented: “Supervisors should act more quickly. They should also be able to impose tougher requirements upon identification of loans turned bad.”

Ring-fencing failed banks

When a bank goes bankrupt, it should not harm the broader economy. The Single Resolution Board aims to orderly restructure a bank when a bank if failing or likely to fail.

Loones said: “Priority should now be given to address the overwhelming risks that still exists in certain national banking systems. In addition any agreement on the European Monetary Fund should aim to ensure that in such cases, in the end, banks themselves foot the bill.”

Protecting small savers

In November 2015 the European Commission proposed to set up a European deposit insurance scheme (EDIS) for bank deposits in the euro zone. This would provide better protection for small savers in case of bank troubles.

Loones said: “Any common deposit insurance system that is to be fair to all citizens, be they German or Italian, should embody this principle. First, there should be risk reduction, and only then, there can be risk sharing. I am confident that such an equilibrium between responsibility and solidarity can be found.”

Parliament fought to protect small savers after the financial crisis struck. Now, all deposits up to €100,000 are protectedthrough national deposit guarantee schemes all over the EU.

Published by European Parliament News