#BankingUnion - Reducing the risk of a new financial crisis

The global financial crisis sparked many new political initiatives aimed at preventing and containing future crises. In Europe, where it became a banking and sovereign debt crisis, it led among other things to the creation of the banking union in the eurozone. European leaders agreed that the European Central Bank (ECB) should supervise the eurozone’s most important lenders, to create a single rulebook and centralize funds to deal with future banking crises.

But more work is needed for the banking union’s completion.

Bailing out banks

MEPs will vote on two reports on bank bailouts by Swedish EPP member Gunnar Hökmark, which say that in the event of a crisis EU countries need to ensure that financial institutions can absorb sufficient losses, so that they will have a minimum impact on financial stability and on taxpayers. Timely clarity is needed, the reports say, to ensure certainty for the markets and allow for a build-up of necessary buffers.

“The new requirements will reduce risks in the financial system, but at the same time, we managed to ensure that banks can play an active role in financing investments and growth,” said Hökmark.

The reports also highlight the importance of having competent authorities with early intervention powers, so that they can help an institution in a deteriorating financial situation.

Reducing risks

Another two reports by German S&D member Peter Simon stress that the completion of the banking union is necessary to create cross-border markets where customers can benefit from the positive effects of an integrated European banking system. At the moment it's more attractive for a bank in the eurozone to focus on its domestic market than it is to expand in another EU country.

“The diversity of the European banking sector is protected by reducing the bureaucratic burden for small, regional and risk-averse European banks that cannot afford large compliance departments or external advisors,” said Simon.

The German MEP also wants the ECB's European Systematic Risk Board to play a bigger role in co-ordinating with EU countries on the measures to take when risks in the financial sector are systematic. The financial crisis in Europe showed that authorities’ policies to prevent and address institutions' imbalances were inadequate.

“Parliament was successful in ensuring that banks will have to assess risks related to the environment and social issues in the future and take measures to address such risks appropriately,” said Simon. “This will clearly create a more sustainable financial sector and enshrine sustainability in banking in the EU.”

Next steps

Parliament will debate the banking reform on Monday 15 April  and vote on it on the following day.