Towards genuine completion of the Banking Union

Resolution submitted by: JEF Political Commission 1 – Institutions and Governance

Adopted by JEF Congress, Paris, October 26th, 2019

In order to solve the political and democratic deficit which affects the EU, the Monetary Union must be completed through the foundation of the Fiscal Union and the full realization of the Banking Union, both fundamental technical and political pillars.The accomplishment of a European Deposit Insurance Scheme (EDIS) – the last step for the completion of the Banking Union – will play a crucial role in building a real European Sovereignty, marking the divorce between banks and National sovereignty.Indeed, a closer Union will overcome the lack of trust among States, strengthening the common supervision mechanism and, thus, making the EMU more transparent and trustworthy for the citizens.

JEF Europe,

  • Recalling that the Banking Union institutions could have played a central role in addressing the Eurozone crisis and safeguarding the single currency, had they been established at the time;
  • Recognising that much progress has been made on strengthening the legal and institutional architecture of the European banking sector;
  • Reiterating the urgent necessity of completing the banking union to ensure financial stability in times of crisis and overcoming national fragmentation, thus making the EMU more resilient to shocks;
  • Recognising the limits of the existing national tools as laid down in Directive n. 2014/49/EU on deposit guarantee schemes, which – by being limited to protect national bank depositors and ensuring national financial stability – remain exposed to country-specific risks, and therefore cannot – in and by themselves – guarantee the resilience of the Banking Union;
  • Noting, further, that while more progress should be achieved on both risk-reduction in the banking sector and the introduction of European solidarity mechanisms, there is currently a mismatch of progress only achieved on risk-reduction;
  • Recalling in particular that the Banking Union’s third pillar, a common deposit insurance, which is critical to reduce the risk of bank runs, is blocked in both the European Parliament and the Council of Ministers;
  • Considering that EDIS would restore the trust of depositors that their deposits are safe, regardless of the Member State where the bank is located, thus helping to break the link between banks and sovereigns;
  • Considering that pooling resources to operate a deposit insurance at the banking union level would enhance the banking sector’s resilience to shocks;
  • Considering that the establishment of EDIS would remove the current misalignment whereby supervision and resolution have been elevated to the European level, while depositor protection remains a national task;
  • Taking note of the recent ECB study suggesting that banks’ contributions to the deposit insurance fund can be designed to reflect their relative riskiness, thus avoiding permanent transfers, while still ensuring equal protection to depositors across the EU;
  • Considering that establishing EDIS could be essentially cost-neutral for the banking sector in the long run, while implementing complementary safeguards and measures to reduce banking risks;
  • Concerned about those Member States that want to maintain their illusory sovereignty upon the banking and credit sector, delaying even further the integration of their banking systems and the creation of the so-called third pillar of the banking union, thus weakening financial stability in the EU as a whole;
  • Aware that some national banking systems in the Eurozone are more vulnerable to shocks, including due to the so-called “bank-sovereign doom loop” – that is, the vicious relationship between a country’s unsound banks and the failure of said country to meet its financial obligations -, in addition to other risks stemming from rising sovereign debt, insufficient liquidity and bank borrowing costs;
  • Concerned by the lack of a truly European governance framework for the resolution of large banks under European supervision, given the limited size of the European resolution fund; noting with concern that this could result in a situation in which resolution decisions taken on the European level by the Single Resolution Board (SRB) would need to be financed through national budgets on very short notice;
  • Recognising that the measures and tools provided by the Maastricht Treaty are insufficient without a common economic policy. In fact, this leaves the Member States sharing the single currency, while the supervision of the banking sector largely remains a national prerogative (according to the principle of “home country control”), therefore leaving the fragmentation of the banking sector largely unresolved;
  • Viewing with appreciation the recent request made by Bulgaria in 2018 and the more recent steps made by Croatia and Sweden to join the banking union in 2019;
  • Concerned by how Member States largely continue to opt for bail-out measures to solve banking crises, which are not only unfair towards taxpayers, but undermine the very credibility of the Banking Union, as they violate the principle of separation between the State budgets and the economic conditions of credit institutions, in other words, the foundation of the Banking Union;

JEF Europe, therefore

  1. Calls for the full completion of the Banking Union to become a matter of urgent political priority for the Eurozone;
  2. Believes that the completion of the Banking Union will create a virtuous cycle in which national banking systems will ensure each other’s stability, and further integrate into a single, competitive European banking sector that is more resilient to shocks;
  3. Urges the European Parliament and the Council to unlock negotiations – both internally, and between each other – on the establishment of the third remaining pillar of the banking union, i.e. the European Deposit Insurance Scheme (EDIS);
  4. Urges Member States to review their agreement on the “Terms of Reference of the common backstop to the Single Resolution Fund”, which would require that  the instrument providing emergency fiscal support in case of systemic banking crises be large enough and endowed with a borrowing capacity;
  5. Considers that the establishment of EDIS and the review of the SRF common backstop are fundamental steps in creating a full, resilient, and viable Banking Union;
  6. Demands that any Member State that wishes to join the Eurozone joins the Banking Union first, providing that they meet the relevant criteria, and that this process is formally established as a mandatory process for joining the euro area in the future;
  7. Encourages, in this context and for the time being, that non-Eurozone EU Member States wishing to participate in the EMU and adopt the single currency enter into a “close cooperation agreement” on the SSM with the ECB. This would allow pre-emptive supervision of their national banks by the ECB (provided that they ensure that ECB measures are made binding upon national authorities) in exchange for a seat in the ECB’s Supervisory Board;
  8. Recommends that the supervisory and monetary policy functions of the ECB are separated operationally and physically, to address potential conflicts of interest between the two objectives of the institution;
  9. Urges EU institutions to establish a single supervisor at EU level for, respectively, the banking market and capital markets, and to provide the Single Resolution Board with recourse to sufficient financial resources to enable it to take resolution decisions concerning large European banks independently from the respective Member State;
  10. Urges the EU and its Member States to work towards the creation of a sound and integrated EU financial system. This can only be achieved if Member States having adopted the single currency participate fully in the Banking Union, the Capital Markets Union, and a fiscal union;
  11. Considers that a genuine and complete Banking Union, Capital Markets Union and Fiscal Union would strengthen the Economic and Monetary Union and its resilience to shocks, all the while constituting fundamental steps towards the establishment of a real political union.

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