Comments on European Banking Union Post author By Philip Lane Post date October 7, 2012 The chair and vice-chairs of the Advisory Scientific Committee to the ESRB provide some comments here. Categories In Uncategorized 16 Comments on Comments on European Banking Union ← Tall Ships and Sovereign Default → Benchmarking current economic performance in the US (and elsewhere) 16 replies on “Comments on European Banking Union” “Currently, bank supervision, resolution and deposit insurance arrangements in the European Union are still essentially national matters. The joint sovereign debt and banking sector crisis that has affected the euro area for several years has shown that this state of affairs is unsustainable.” “… if bail-ins of banks’ creditors become the rule rather than the exception, as they should under an appropriate system of governance for financial contracting, most funding needs will only be temporary so that bridge loans from the ESM should suffice.” What they propose is excellent, at least compared to the current situation, let’s hope we end up with their recommendations. They are against the 25 biggest banks proposal, the more voices raised against it the better. EZ wide deposit insurance is of the utmost importance. It does not make sense to delay EDIRA. Supervision and EDIRA should be implemented simultaneously. Only when there are consequences resulting from poor supervision can it be taken seriously. Joseph E Stiglitz gave a series of lectures at LSE on Creating a Learning Society. I am very impressed at the depth and breadth of Stiglitz’s knowledge. Might be something of interest to the academics among us. http://www.youtube.com/watch?v=-pdZXBshad8 What is an Advisory Scientific Committee doing reporting on banking unions? Or is this another instance of some group of economists pretending that they are scientists again? Either way, the whole report is now pretty suspect. From the report: ‘If the ECB, in its lead role under the single supervisory mechanism, were to require the closure of a given nationally systemic bank, who would bear the fiscal burden involved? And what procedures would be in place to limit the systemic fallout?’ What fiscal burden? It is profoundly depressing that even these guys do not appear to understand that the extent of the fiscal burden is a policy choice. The ESRB is the “European Systemic Risk Board” Point 17 of report. “Whereas a European deposit insurance scheme is not immediately needed, a resolution authority is essential for the credibility of the single supervisory mechanism.” Not immediately needed! Translated; Deposit flight is perfectly ok, as long as the deposits are flowing towards core banks. This ‘Systemic Risk Board’ should be sacked forthwith. @ All On thw wider issues, FYI a link to Euractiv on the increasingly belligerent stance being adopted by Cameron. http://www.euractiv.com/future-eu/cameron-draws-new-lines-eu-budge-news-515246?utm_source=EurActiv%20Newsletter&utm_campaign=2835c8bc02-newsletter_daily_update&utm_medium=email The IT makes the case for the Irish plaintiff this morning. http://www.irishtimes.com/newspaper/opinion/2012/1008/1224325013808.html One must have some sympathy for a government endeavouring to negotiate against the background of such a narrative even if it contributed greatly to its creation both before and since the election. On the issue of the Presidency, it is obvious that the essential element in the successful conduct of any presiding role is that of impartiality. Neither the Taoiseach nor the Tánaiste (as Minister for Foreign Affairs) will preside any formal meetings as has been the case for other presidencies since the changes introduced by the Lisbon Treaty. I notice that the comments divide banks between those that are nationally systemic and those that are globally systemic. It seems to ignore the case of banks such as Anglo and Irish Nationwide (quasi-bank) that are transparently not nationally systemic, and are not big enough to qualify as globally systemic, but are still (if we can believe the ECB and its fellow travellers) systemic at European level. @ Joseph Ryan In case you missed the link embedded in the Euractiv link. http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/132413.pdf This is the agenda to which the EU is working. The collapse of banks should surely remain a healthy winnowing mechanism, a foil to their involvement in practices that are designed to, or as a side effect overinflate the target products of their loans ? Deposit insurance within healthy limits by all means, but there is no reason why the nations of europe should have to collectively or severally underwrite the banking system. They remain private enterprises, and when one dies let another take it’s place. This is really just a political indenture exercise under the guise of financial insurance, in any case. Cohn Behndit & co. on CNBC now calling for the full federation to protect the euro. Says it all…. Without deposit insurance failing and failed banks have to be rescued by the Gov’t of the day so as to avoid runs on all financial institutions. With credible deposit insurance the healthy banks lobby Gov’t to put the failing institution out of its misery. The failed bank is taken over by the Deposit Insuring Authority similar to the FDIC in the US or CDIC in Canada. The failed bank is closed for 24 to 72 hours as the top management and board of directors are removed. New top management is then installed and withdrawals get back to normal. It is ten up to the Gov’t whether to wind the bank down and put it into bankruptcy or invite exisiting healthy banks to .bid on taking it over . The shareholders usually lose everything, subordinated bondholders lose a lot and in some cases preferred bond holders take a bath. The taxpayers absorb some legal and administrative costs, a pittance compared to what we will pay Frankfurt, New York, London and Paris investors. The important thing is with deposit insurance there is no panic stricken reaction with Gov’t giving away the store to calm the depositors and save the rest of the shakey banks. Four years after the calamity we are still in a very unstable situation with the Gov’t having bet revenue for the next twenty years on a bank led recovery funded by taxpayers. The mindset reminds me of putting it all on the second favourite in the third race at Leopardstown. Contemplate the fairness, cleanliness and efficiency of the process under DP compared to the irresponsibility, recklessness, cronyism and doling out of sinecures that has occurred in Ireland. We look like clowns to the rest of the world. Up until this we drank too much but we were stoic, hard bitten and hard working. Our reputation is now gone up in smoke. @Mark Cohn Behndit & co. on CNBC now calling for the full federation to protect the euro. Danny was basically a good guy but his enthusiasm for “ever closer union” has blinded him to the direction of currently existing European Union economic and social policy. Political accountability for European institutions and popular democratic control should have preceded any moves towards greater monetary and fiscal policy integration and the European left made a serious error when they swapped principle for meaningless drivel about unity. The unity they ended up encouraging is between the EPP, the financial sector and the Europe’s wealthy and mobile elite. Upper class solidarity. Re- Shay For some the religious-ethos of this site might place it’s under doubt of bias, but the quotes are all reputable, from Der Spiegel; I’d read most of them there before a random google of ‘Cohn-Bendit’ provided the link. http://www.podles.org/dialogue/principled-pedophilia-and-the-german-left-342.htm As for political accountability & democratic control preceding integration, the further the parliament moves from the people the less validity it holds. The reality is that ‘europe’ is composed of discrete, individual parts, and the current expression of these peoples and their regions in the existing nations creates a far more justified democratic model than a macro-government. The very structure of a super-parliamentary system is, by it’s nature, counter-democratic – the system has transcended it’s ostensible purpose and become a seperate entity. Some might think that this is a deliberate desogn-flaw. Federalism is Europe’s answer to the popular overthrow of empire. ‘design-flaw,’ of course. And the last sentence was a paraphrase or straight theft from somebody else; here, I think. CART00N OF THE DAY Germany-Greece Angela in Athens 8 October 2012 NRC Handelsblad Rotterdam http://www.presseurop.eu/en/content/cartoon/2833621-angela-athens Comments are closed.