Banking Union and EU banking sector competitiveness
Banking Union and EU banking sector competitiveness
Context
In response to the EU sovereign debt crisis (2011-2012), the European Union created the Banking Union to safeguard financial stability, deliver a safer banking sector and protect the taxpayer from the cost of bank failures. The banking union, currently covering 19 eurozone countries, is also open to other EU Member States.
Europe ‘s competitiveness and growth needs competitive banks. A genuine banking union would foster a more effective allocation of resources across the Eurozone (e.g., companies would be able to tap wider and cheaper sources of funding) and help to achieve a better diversification of risks. A fully integrated banking union would enable the emergence of transnational and competitive banking groups in the EU which would help Eurozone ‘s excess savings to circulate across borders to parts of Europe where most attractive investment opportunities exist, and to increase private risk sharing in the Union.
The conception of the Banking Union relied on three pillars: the first one is supervision, the second one is resolution, and the third one – which is still a matter of discussion among Member States – is the management of Deposit Guarantee Schemes (DGSs).
The first pillar of the banking union is the Single Supervisory Mechanism (SSM) created in 2014, a new system of banking supervision comprising the ECB and the national authorities, directly supervising the 115 most significant banks of the euro area (holding almost 82% of European assets).
The Covid-19 crisis and the banking turmoil of Spring 2023 have proved the Banking Union to promote a more resilient European banking sector. But ten years after its creation, the Banking Union has not been completed, and two of its main objectives – namely, to break the sovereign-bank loop and to create a genuinely integrated single market for banks – have not been achieved.
Despite the creation of European supervision and regulation authorities, the banking sector in Europe remains too fragmented – due to a sub-optimal capital and liquidity allocation between the parents and subsidiaries of pan-European banking groups, low profitability levels, different legal systems and so on. Many European countries’ banking systems remain overcrowded, and market concentration has only progressed at domestic level. The “national bias” continues to fragment the banking market along national lines: there are no host supervisors anymore, but the distinction between home and host authorities still exists for banks operating across borders under the remit of the SSM, hence the persistence of ring-fencing practices.
This is an element of risk because if a shock is hitting a part of the banking union, the banking sector does not work as a shock absorber by absorbing losses in one country, for instance, through profits in another country. Moreover, banks cannot create truly pan- Eurozone business because they must deal with a patchwork of national authorities ‘different rules on conduct.
These issues still need to be addressed by EU regulators and supervisors in order to catch up with the US banking sector and to foster a more profitable and unified European Banking Union.
The Banking Union also relies on an efficient Crisis Management Framework and resolution framework (second and third pillars). Find more about these topics here.
Eurofi documents
Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)
Panel discussion summaries
Banking Union: how to break the deadlock? - Ghent High Level Seminar - February 2024 new
Diversity in the EU banking system - Ghent High Level Seminar - February 2024 new
Taking advantage of bank diversity in Europe - Stockholm High Level Seminar - April 2023
Competitiveness of the EU banking sector - Stockholm High Level Seminar - April 2023
Banking Union after the June Eurogroup decisions - Prague Financial Forum - September 2022
Competitiveness of the EU banking sector - Prague Financial Forum - September 2022
Addressing ring fencing practices in the Banking Union - Paris High Level Seminar - February 2022
Challenges for the EU banking sector in the Covid context - Lisbon Virtual Seminar - April 2021
Making the Banking Union effective - Helsinki Financial Forum - September 2019
Addressing ring-fencing issues in the Banking Union - Bucharest High Level Seminar - April 2019
Optimising the Banking Union - Vienna Financial Forum - September 2018
Eurofi Views Magazine chapter
Banking Union & ring fencing issues
Banking Union - February 2024 new
Guiseppe Siani - Banca d’Italia | Christophe Bories - Ministry of the Economy, Finance and Industrial and Digital Sovereignty, France | Peter Palus - Permanent Representation of the Slovak Republic to EU | Rui Miguel Correia Pinto - Banco de Portugal | Tanate Phutrakul - ING Group | Christian Castro - CaixaBank | Riina Salpakari - Nordea
Diversity in the EU banking system - February 2024 new
Guiseppe Siani - Banca d’Italia | Edouard Fernandez-Bollo - European Central Bank (ECB) | Harald Waiglein - Federal Ministry of Finance, Austria | Csaba Kandrács - The Central Bank of Hungary | Perrine Kaltwasser - La Banque Postale | Daniel Quiten - National Association of German Cooperative Banks (BVR) | Christian Edelmann - Oliver Wyman (UK) | Benoît de La Chapelle Bizot - BPCE Group
Future of the Banking Union - September 2023
Harald Waiglein - Federal Ministry of Finance, Austria | Dominique Laboureix - Single Resolution Board (SRB) | Jukka Vesala - Nordea Bank | Stanislas Roger - SMBC Bank EU AG | Piercarlo Padoan - UniCredit Group SpA
The integration of the EU banking sector and the challenges of global competition - September 2023
Andrea Enria - European Central Bank
Competitiveness of the EU banking sector - April 2023
Giuseppe Sani - Banca d’Italia | José Manuel Campa - European Banking Authority (EBA) | Axel A. Weber - Center for Financial Studies (CFS) | Sébastien Raspiller - Ministry of the Economy, Finance and Industrial and Digital Sovereignty, France | Fernando Vicario - Bank of America Europe DAC | Bárbara Navarro - Public Policy & Institutional Relations - Santander | Christiana Riley - Deutsche Bank USA Corp.
Banking Union after the Eurogroup June decisions - September 2022
José Manuel Campa - European Banking Authority | Margarita Delgado - Banco de España | Steven Costers - Federal Public Service Finance - Treasury | Harald Waiglein - Ministry of Finance, Austria | Christian Castro - CaixaBank | Francesco Ceccato - Barclays Europe | Christian Edelmann - Oliver Wyman | Pier Carlo Padoan - UniCredit S.p.A
Taking advantage of bank diversity in Europe - September 2022
Giuseppe Siani - Banca d’Italia | Margarita Delgado - Banco de España | François-Louis Michaud - European Banking Authority | Edouard Fernandez-Bollo - European Central Bank | Jacques Beyssade - Groupe BPCE | Julia Symon - Finance Watch | Guido Maria Nola - BancoPosta - Poste Italiane
Competitiveness of the EU banking sector - September 2022
Sylvie Goulard - Banque de France | Fernando Vicario - Bank of America Europe DAC | Helmut Etll - Austrian Financial Market Authority | Nicoletta Mascher - European Stability Mechanism
P. Donohoe - President of the Eurogroup and Minister of Finance of Ireland
Ringfencing practices in the Banking Union - February 2022
Harald Waiglein - Federal Ministry of Finance, Austria | Fernando Vicario - Bank of America Europe | Gediminas Šimkus - Bank of Lithuania | Elizabeth McCaul - European Central Bank | Peter Palus - Permanent Representation of the Slovak Republic to EU | Karl-Peter Schackmann-Fallis - Deutscher Sparkassen- und Giroverband | Gilles Briatta - Société Générale
Bank fragmentation and consolidation - September 2021
José Manuel Campa - European Banking Authority | Edouard Fernandez-Bollo - European Central Bank | Fernando Vicario - Bank of America Europe | Pier Carlo Padoan - UniCredit S.p.A. | Luigi Federico Signorini - Banca d’Italia | Christian Edelmann - Oliver Wyman
Does the Covid crisis reinforce the case for Banking Union? - September 2020
Edouard Fernandez-Bollo - European Central Bank | Dr. Eva Wimmer - Federal Ministry of Finance, Germany | Luis Garicano - European Parliament | Elke König - Single Resolution Board | Martin Merlin - European Commission | Dr. Karl-Peter Schackmann-Fallis - Deutscher Sparkassen- und Giroverband | Santiago Fernández de Lis - Banco Bilbao Vizcaya Argentaria | Diederik van Wassenaer - ING Groep
Costs and risks of not achieving the Banking Union - April 2020
Irene Tinagli - European Parliament | Markus Ferber - European Parliament | Robert Holzmann - Oesterreichische Nationalbank | Carlos da Silva Costa - Banco de Portugal | Vitas Vasiliauskas - Bank of Lithuania
Banking Union home-host dilemma - April 2020
Edouard Fernandez-Bollo - European Central Bank | Martina Drvar - Croatian National Bank | Maria Stolpe - Nordea