European Banking Union (eBook)

Angelo Baglioni is Professor of Economics at Catholic University of Milan, Italy. He previously worked as an economist in the research department of a major bank. He has carried out extensive research in the fields of banking, finance, and monetary policy. He has written several articles in international journals as well as books.

Dedication 6
Contents 8
List of Abbreviations 10
List of Figures 12
List of Tables 14
Chapter 1: Introduction 15
1.1 The European Banking Union: A Work in Progress 15
1.2 Why This Book? 17
1.3 Plan of the Work 18
Chapter 2: Three Reasons for the European Banking Union 20
2.1 Reduce the Fiscal Cost of Banking Crises 22
2.2 Break the Two-Way Link Between Bank and Sovereign Risks 26
2.3 Achieve a Uniform Supervisory Standard 34
References 41
chapter 3: The Single Supervisory Mechanism 43
3.1 The Architecture of the Single Supervisory Mechanism 45
3.1.1 The Governance of the SSM 45
3.1.2 A Discussion of the Separation Principle12 47
3.1.3 Significant versus Less Significant Banks 51
3.2 The Supervision of Significant Banks 54
3.2.1 Ordinary Supervisory Activity 54
3.2.2 Authorization Procedures 55
3.2.3 The Joint Supervisory Teams 56
3.2.4 The Balance of Power Between ECB and NCAs 59
3.3 The Supervision of Less Significant Banks 60
3.4 The SREP Approach 63
3.5 Macro-prudential Supervision 66
References 71
Chapter 4: The Comprehensive Assessment 73
4.1 Asset Quality Review 75
4.2 Stress Test 78
4.3 Capital Shortfalls and Remedial Actions 80
4.4 A Critical View 83
4.4.1 CET1 Ratio versus Leverage 83
4.4.2 Level 3 Assets and Derivatives 87
4.4.3 National Biases 88
4.4.4 Micro-prudential Approach 89
4.4.5 Pitfalls in Communication 90
References 91
Chapter 5: The Single Resolution Mechanism 93
5.1 The BRRD: A New Framework for Crisis Management 95
5.1.1 Why a New Regime for Managing Banking Crises? 95
5.1.2 Three Stages: Recovery, Early Intervention, and Resolution 96
5.1.3 Recovery 98
5.1.4 Early Intervention 98
5.1.5 Resolution 99
5.1.6 National Resolution Funds 104
5.1.7 A New Requirement for Banks: MREL 106
5.2 The Single Resolution Mechanism 106
5.2.1 The SRM Architecture: Single Resolution Board and National Resolution Authorities 106
5.2.2 The SRM Governance and Decision-Making 108
5.2.3 The Single Resolution Fund 110
5.2.4 The European Stability Mechanism as a Fiscal Backstop 113
5.2.5 The SRM and the State Aid Rules 117
References 121
Chapter 6: The Missing Pillar: A European Deposit Insurance 122
6.1 The Directive of 2014 123
6.1.1 Supervision 124
6.1.2 Coverage 124
6.1.3 Funding 126
6.1.4 Scope of Intervention 129
6.1.5 Payout Time 130
6.1.6 Transparency 130
6.1.7 Cross-Border Cooperation 131
6.2 The Way Forward 131
References 135
Chapter 7: Summary and Conclusions 136
7.1 The European Banking Union: Motivations and Building Blocks 136
7.1.1 The Reasons for Introducing the Banking Union 136
7.1.2 Single Supervisory Mechanism 137
7.1.3 Single Resolution Mechanism 138
7.1.4 European Deposit Insurance 139
7.2 Open Issues 139
7.2.1 Macro-prudential Supervision 139
7.2.2 Comprehensive Assessment 140
7.2.3 Resolution of Distressed Banks 140
7.2.4 Deposit Insurance 141
Index 142