Banking union: Nice idea but detail still devilish

Mon Dec 16, 2013 9:29am EST
 
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By Luke Baker and Carmel Crimmins

BRUSSELS/DUBLIN (Reuters) - In the beginning, the European Union came up with two words: Banking Union. It sounded simple, solid, united, dependable.

But in the 18 months since the idea was put on paper, the phrase has come to mask a vastly complicated and not yet very united system that may fall short of resolving the problems afflicting Europe's banks over the past five years.

From a Single Supervisory Mechanism to a Single Resolution Mechanism, incorporating a split-level authority and a Single Resolution Fund, Europe's banking union has become a multi-headed hydra offering little clarity on when or how quickly a bank's problems can be sorted out.

Aside from the plethora of acronyms - SSM, SRM, SRF, BRRD - that litter the snowstorm of documents produced to discuss the concept, it is still not absolutely clear which banks will be overseen by which authority and who has the final (the final, final) say in deciding if a bank has to be wound up.

As one exasperated U.S. diplomat put it after the last round of late-night negotiations over the scheme: "You try and explain that to the U.S. Treasury."

DEVIL IN THE DETAIL

When it was first sketched out at the height of the euro crisis, banking union was supposed to have three solid planks: a single supervisor for the region's 8,000 banks; a single resolution authority to restructure or close failing banks; and a unified scheme for guaranteeing bank deposits.

Drawing on the expertise of the European Central Bank and the logic of the U.S. Federal Deposit Insurance Corporation, the aim was to overhaul the disparate network of regulation across the 28 EU member states - especially the 17 in the euro zone - and produce a cleaner, smoother system of oversight.   Continued...

 
A sign for Bank Street and high rise offices are pictured in the financial district Canary Wharf in London in this October 21, 2010 file photo. REUTERS/Luke Macgregor/Files