The European Banking Union Is Not So United

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The 27 members of the European Union have deliberated over how to reform and unite banking institutions for years. The financial crisis in the euro zone is growing old and in some cases manageable, but finance ministers all agree that the legal framework, which establishes the rules and regulations for banking institutions in the region, needs to be fixed.

The EU has been working to establish a so-called “banking union,” a legal architecture that would normalize banking behavior and create a platform for future changes. Those changes: a single depositor’s insurance across Europe, a clear and standard way to wind down bankrupt banks, and granting authority to the European bailout fund to directly recapitalize banks, instead of having to funnel money through governments (as was the case recently with Spain and its national banks).

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A supervisory body headed by the European Central Bank has been at the center of discussions to date. In current proposals, the ECB would hold authority over nearly all of the 6,000 licensed banking institutions in the region, serving as an arbitrator with final authority on major banking decisions.

Americans can attest to the fact that any banking reform is going to be hotly debated on both sides. The United States has witnessed the debates over the Dodd-Frank act and the regulatory firestorm that ignited in the wake of the financial crisis. The process in Europe threatens to reveal the same sort of fundamental disagreement on the relationship of government and banking…

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