The post-crisis financial sector reforms were designed
to strengthen financial stability. At European level, the firm,
cohesive commitment towards Banking Union (BU) helped counter
financial fragmentation. However, the political will to
complete the architecture waned as policymakers got stuck in
the risk-reduction vs. risk-sharing debate, losing sight of the
The present state of BU is characterized by a critical flaw:
supervisory and resolution decisions are mostly European,
whilst the ultimate guarantor of financial stability remains
national, with limited tools to act. The stabilising elements
In parallel, the new regulatory framework – which
should ensure well capitalized institutions without favouring
business models – entered into force without taking
into account the timings of the crisis and institution-specific
characteristics of certain countries. Regulatory-driven
consolidation has become imminent. Only larger banks are likely
to be able to comply with increasingly complex regulation and
potentially disproportionate requirements, thereby potentially
fostering the comeback of too-big-to-fail.
As the political will to move forward is insufficient,
policymakers and co-legislators need to fine-tune the
regulatory framework to provide the Member States with tools to
preserve financial stability – a public good
– in view of the existing challenges:
- Without the European deposit insurance
scheme (EDIS) is there the need and space for alternatives?
As banks in which there is no public interest at a European
level are 'national in death', exit models and the
strengthening of supervisory powers of host authorities need
to be discussed.
- The approach adopted in the EU regarding
total loss-absorbing capacity (TLAC) (known as the minimum
requirement for own funds and eligible liabilities (MREL)),
combined with a set of other regulations, may challenge the
dominant role of the banking sector as collector of savings
in the European financial model.
- The ability to manage the social and
economic impacts ensuing from the failure of a bank with
systemic relevance at local level must be ensured as
harmonising EU banks' liquidation regimes is not the
Without completing BU, the ultimate objective, should we not
- the application of the Bank Recovery and
Resolution Directive (BRRD) in its current form only to banks
that are eligible for the European safety net?
- the revision of the BRRD and State aid requirements for
medium-sized banks with systemic relevance for the cases
where national authorities, in order to safeguard financial
stability, are willing to engage in the burden sharing
without distorting competition?
- alternative ways of ensuring the exit of
medium and small-sized banks from the market while preserving
value and protecting creditors and non-financial
- special insolvency proceedings as an
alternative to the 'atomistic' liquidation regime with a
limited usage of public funds as a bridge to safeguard
While the absorption of losses by private stakeholders
should be the norm, flexibility should be preserved as the
financial system's network structure is fundamental in deciding
whether there is the need for a government to intervene.
A comprehensive approach across legislation and
stakeholders' interactions analysing cross-implications is thus
required to minimise moral hazard and vested interests, while
preserving the necessary market discipline.