On Thursday 11 June, the Eurogroup decided to relaunch the experts’ work on the completion of the euro area banking union and planned to meet again in the autumn to take stock of the situation.
“The work on the banking union must continue. Efforts on this file were halted due to the immediate response to the Covid-19 crisis”, said its outgoing president, Mário Centeno.
In January, ministers noted the continuing deadlock, both on drawing up a roadmap for the completion of the banking union and on the reform of the European Stability Mechanism (ESM) (see EUROPE 12405/22).
According to the Eurogroup, a “holistic” approach should make it possible to tackle all issues head-on: the early introduction of the Single Resolution Fund (SRF) backstop, the European EDIS bank deposit guarantee system, the banks’ exposure to sovereign risk, and liquidity issues in the event of a bank group’s resolution.
In the experts’ opinion, the differences present before the pandemic have not disappeared, and the crisis is expected to even further polarise well-known positions between countries advocating a reduction of risks before they are shared within the banking union and those for whom the sharing of financial risks contributes precisely to their reduction.
The economic crisis is likely to push up the average rate of non-performing bank loans (NPLs), which had fallen to 2.8% of total outstanding bank loans in the EU in the third quarter of 2019. The reduction of NPLs is a precondition for the introduction, before the end of 2023, of the SRF safety net, a role that will be played by the ESM. The financial turmoil observed at the beginning of the pandemic had an impact on the balance sheets of banks with a high exposure to their home countries’ public debt. They reinforced the conviction of countries advocating prior risk reduction that exposure to sovereign securities should come at a cost.
See the report of the Croatian Presidency of the EU Council on the banking union: https://bit.ly/3cVBARG (Original version in French by Mathieu Bion)