SUMMARY
A European banking union is urgently required in
order to restore credibility and stability to the euro area banking
system, and to break the vicious cycle between banks and sovereign
states. The UK has made clear that it will not participate in
a banking union, although other non-euro Member States may well
wish to do so. Nevertheless the consequences for this country
could be momentous. There is a significant risk that the UK will
be marginalised as banking union participants move towards closer
integration. This in turn threatens to fracture the single market,
as the authority of EU-27 bodies such as the European Banking
Authority and the European Systemic Risk Board comes under threat.
The Government's assurances about the impact on the City of London
may prove misplaced. The Government must do all in their power
to ensure that London's pre-eminence as a financial market is
not imperilled and that the integrity of the single market is
retained. UK isolation in debates of such fundamental importance
would be disastrous.
The original banking union proposals set out a three-pronged
approach: a Single Supervisory Mechanism, a common resolution
mechanism and a common deposit insurance scheme. We regret that
this coherent model has already been undermined by political pressure,
led by Germany. Banking union requires all three of these elements
if it is to be effective.
However we welcome the publication of the Single
Supervisory Mechanism proposals as a significant first step towards
banking union. We agree that the European Central Bank, to be
given ultimate supervisory responsibility for every euro area
bank, is the only organisation with the necessary credibility
and authority to take on this role. But the concentration of so
much power in one institution means that powerful safeguards must
be put in place.
It is vital that there is no conflict of interest
between the ECB's supervisory and monetary policy tasks. The ECB
needs to be fully accountable, both to the European Parliament
and to national parliaments, in the exercise of its supervisory
powers. There must be equality in the supervisory decision-making
process within the ECB between euro area and non-euro area Member
States who wish to participate. Equally, the role of the EBA in
representing all 27 Member States must not be undermined and the
Commission must defend the integrity of the single market as a
whole.
The Commission's original proposals do not go nearly
far enough to meet these concerns. It is highly uncertain whether
these safeguards can be put in place within existing treaty constraints.
European legislators need to decide whether treaty change is a
price they are willing to pay in order to create a viable banking
union. Adopting rushed and deficient legislation would be the
worst of all possible outcomes.
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