The European Banking Union is celebrated by advocates as a revolutionary way to create a more stable institutional architecture for the euro zone. Opponents say the planis indirectly creating a Europe-wide liability for all eurozone taxpayers and customers of indebted banks.
Euro skeptics such as Markus Ferber, the chairman of the Christian Social Union’s fraction in the European Parliament, wants to take the issue to the Federal Constitutional Court of Germany. In reality, the critics are exaggerating.
Consider the key elements and the facts of the banking union.
In the future, the European Central Bank will oversee banks in the euro zone. Before that scrutiny begins, the ECB is screening the balance sheets of the largest banks so that hidden losses can be revealed. All banks will be required to maintain more equity. The results of these “stress tests” will be announced in October.
If the banks still have financial problems, they will be restructured or liquidated according to a uniform, regulated process spelled out in the banking union’s agreement. In the case of losses, bank equity owners and creditors will be liable first and foremost. Small investors will be protected through a deposit protection fund.