The European banking union from the Spanish perspective: Myths and reality

The European banking union from the Spanish perspective: Myths and reality

Fecha: julio 2013

Autores: Santiago Carbó Valverde, Francisco Rodríguez Fernández

Etiquetas: Reestructuración bancaria, Recapitalización bancaria, Unión bancaria europea, Fragmentación financiera, Mercado financiero

Spanish and International Economic & Financial Otlook, SEFO, V. 2 N.º 4

The European banking union project has drawn a significant amount of recent attention. However, despite the inevitable trade-off between the time needed to establish it and the quality of the union, progress on implementation remains limited given the lack of political consensus. Additionally, certain design aspects, in particular related to the Single Resolution Mechanism (SRM), fall below expectations. Market fragmentation is still high and in part attributable to government policies across the EU. Empirical results suggest that government implicit support to the banks –the so-called implicit guarantees– can be twice or three times larger in countries such as Austria or Germany than in Spain, Italy or Portugal. Evidence shows a 1% increase in the implicit guarantee (resulting in lower funding costs for banks) is passed on in the form of a 0.52% lower interest rate applied to firms for bank loans. Thus, a strong banking union would not only benefit peripheral countries engaged in recapitalization and restructuring efforts, but also the Euro zone as a whole.

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