Abstract
This chapter assesses the need for a complete European Banking Union (EBU) given the perceived shortcomings of Europe’s Economic and Monetary Union (EMU), especially the negative banking-sovereign linkages highlighted by the Eurozone crisis. If properly implemented, a complete EBU severs these linkages and strengthens the resilience of Europe’s banking sector. The design of an optimal EBU comprises three components: European Deposit Insurance System (EDIS), Banking Recovery and Resolution Directive (BRRD) and European Stability Mechanism (ESM), which could evolve to a European Monetary Fund (EMF). While such a design encompasses both risk-reduction and risk-sharing features, the former has been favored due to mostly political considerations. Indeed, completing EBU will require significant political will to adopt additional risk-sharing measures, such as a common fiscal backstop and a truly supranational EDIS, amongst others.
| Original language | English |
|---|---|
| Title of host publication | Challenges and Opportunities for Eurozone Governance |
| Editors | José Manuel Martins Caetano , Miguel Rocha de Sousa |
| Publisher | Nova Science Publishers |
| Chapter | 5 |
| Pages | 81-96 |
| Number of pages | 16 |
| ISBN (Electronic) | 9781536134759 |
| ISBN (Print) | 9781536134742 |
| Publication status | Published - 1 Jan 2018 |
Keywords
- Bank-sovereign linkages
- European banking union
- Eurozone crisis