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How to save bank resolution in the European banking union

Gordon, N. J. & Ringe, G. (2014) “How to save bank resolution in the European banking union“, VoxEU Organisation, 30 Απριλίου.


The European Parliament recently adopted the Single Resolution Mechanism. Though supposed to be a pillar of the European banking union, it is fraught with difficulties. This column makes a proposal for a new organisational structure that can deal with bank failure more effectively. European banks should be required to self-insure against failure. Further, the ECB should be the only financially credible player to provide liquidity for the resolution procedure. These proposals would strengthen the current banking union project, and can overcome certain political difficulties.

A few days ago, the European Parliament adopted the Single Resolution Mechanism (SRM), the second pillar of the emerging ‘banking union’ for Europe. Yet, the project is fraught with difficulties and initial enthusiasm is long gone. Although the prevailing view holds that an effective banking union requires three pillars – supervision, resolution, and deposit guarantee – the current political situation suggests that they are unlikely to be achieved. Political agreement for a common supervision framework has been reached with some difficulty, but agreement on the SRM was much more complicated than anticipated. In particular, the funding of the resolution mechanism proved to be very controversial, and the outcome jeopardises the credibility of its operation. Further, some EU member states have made it clear that they are not at all willing to support calls for a joint deposit guarantee scheme, and this third pillar has now been dropped accordingly (O’Donnell and Körkemeier 2014).


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