06 September 2018

Per Callesen: The European banking union in perspective - is there risk sharing and joint liability?

His main conclusions are:

• The economy and financial stability are still on a steady course.
• International rule-based cooperation is under pressure. That gives cause for concern and emphasises the need to protect the cooperation that exists and that we are able to participate in.
• As regards the banking union and the euro area, a clear picture is emerging – so far and looking ahead – of very limited money transfers between member states. In other words, there is limited risk sharing and joint li-ability. Some Europeans lament this, and there are arguments both for and against risk sharing, but there are good reasons why the institutions have been designed as they have.

There are a number of strong, arguments in favour of participating in the banking union, including: further development of the single market with more competition, for the benefit of consumers and firms at home and the ability of banks to operate in other member states. Stronger supervisory powers in terms of capacity, depth, methods and the opportunity to take a broader perspective. Better management of cross-border financial activities. Greater credibility in relation to the bail-in rules, and greater certainty that failing banks will be treated in the same way. And like all other international cooperation for a small country: influence on rules and practices that must, in effect, be observed in any case – including having a spokesperson in institutions such as Basel and the FSB, where we are not invited to sit at the table ourselves.

The insurance element is not at the core of the banking union. An insurance element does exist for use in extreme situations with failing banks, but otherwise its role will be very limited. So the insurance element and its counterpart – fear of liability for problems incurred by banks in other member states – are neither key arguments for participating in nor remaining outside the banking union.

Mr Callesen is not claiming that transfers between the EU member states do not and should not exist. Transfers have taken place for many years, via the EU budget, and the amounts are considerable. Several member states receive up to 3 per cent of their GDP on the basis of a number of objective and structural criteria. So it would not be new or exceptional if other elements of the cooperation were also to include such transfers. But neither the euro project nor the banking union have involved or envisage transfers between member states to any substantial degree. And in practice, the institutions are systematically designed to minimise the likelihood of such transfers. That will probably characterise also future developments within this area.

Full speech

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