Why Europe's bank supervisor is hamstrung

The EU has released its proposal for a union-wide banking supervisory mechanism, but its failure to centralise deposit insurance simultaneously may be its undoing.

The European Commission has now presented its legislative proposal for a banking union whose key element is a ‘Single Supervisory Mechanism’ to be headed by the ECB, but it says nothing about deposit insurance at the national level. Is that viable?

Setting the incentives

Economists use a ‘backward’ approach when looking at the link between supervision and deposit insurance and resolution. The endgame of deposit insurance and resolution drives the incentives for ex ante supervision.


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