December 2018 – Thorsten Beck: Baby steps towards completing the banking union

Blog entry by Thorsten Beck, December 6, 2018

This week, the Eurogroup (Ministers of Finance of all Eurozone countries) agreed on some reforms for the banking union and Eurozone governance. As always, it is two steps forward and one step back. There has been an important step towards creating a backstop for the Single Resolution Fund (in the form of a revolving credit line from the ESM), which will strengthen the resolution component of the banking union. Having access to the necessary funding (even if only for transitional needs) provides supervisory and resolution authorities more options and stronger incentives to intervene in time. Moving towards a Eurozone-level deposit insurance, on the other hand, has been referred to yet another High-level Working Group, which is supposed to report back by June 2019 – typical can kicking. While one might see backstop and Eurozone deposit insurance as substitutes, creating a common backstop specifically for depositors in the form of a Eurozone deposit insurance can help create stronger confidence in the banking system in some periphery countries where the national backstop to the deposit insurance is not trusted and might also help to move the Eurozone towards a Single Market in banking.