Europe’s bankers aren’t ready for marriage now

After a year-long pause, the euro zone seems ready to resume talks over the completion of a “banking union”. The project — which includes creating a single deposit insurance scheme for all the bloc’s lenders — would go a long way towards boosting the resilience of Europe’s financial system.
For all the good intentions, however, the zeitgeist in the monetary union has changed. The pandemic has spurred a new wave of economic nationalism, and banks are part of it. Take the board coup at UniCredit SpA, Italy’s second largest lender. It shows how banks are increasingly looking inward rather than embracing the European project.
Paschal Donohoe, president of the Eurogroup of finance ministers, told the Financial Times this week that he intends to present a new detailed banking union plan for the middle of next year. The euro zone has created a single supervisor for its lenders, centered around the European Central Bank, and devised a single rulebook to deal with banking troubles. Last week finance ministers also backed plans to beef up the so-called “Single Resolution Fund” so that it can handle bank failures using money from the European Stability Mechanism, the euro area’s rescue fund.
But there are still several missing pieces. The liquidation of smaller banks continues to take place using national rules, which can vary widely between countries. Then there’s the issue of who provides liquidity to a significant lender as the authorities wind it down. Most important, the euro zone still lacks that joint deposit insurance scheme, which would guarantee savings up to a certain threshold in all banks. This tool would make sure all of the bloc’s depositors are equally protected, rather than having to rely on the strength of their national institutions.
Last year Olaf Scholz, Germany’s finance minister, suggested Berlin was ready to drop its longstanding opposition to a watered-down version of this plan. Germany fears it would be on the hook for banks in weaker member states. Discussions have since stalled. That the euro zone wants to take a fresh look at this debate is welcome and overdue.
Unfortunately, the banking system doesn’t seem ready for “more Europe.” The pandemic has spurred a wave of consolidation but, from Italy to Spain, this seems to be occurring mainly along national lines. Since the creation of the banking union six years ago, there hasn’t been a significant cross-border merger. That’s unlikely to change.
The recent ousting of Jean Pierre Mustier as chief executive officer of UniCredit confirmed that banking nationalism is on the rise in the euro zone.
—Bloomberg