Toward A Banking Union

The obstacles to establishing a single banking regulator once seemed insurmountable, yet the EU has now reached an agreement that will enable the ECB to supervise all large banks in the euro zone. Photograph: Olivier Holmey

The obstacles to establishing a single banking regulator once seemed insurmountable, yet the EU has now reached an agreement that will enable the ECB to supervise all large banks in the euro zone. Photograph: Olivier Holmey

On Thursday, the European Union’s 27 countries agreed to grant the European Central Bank the power to regulate more than 150 banks across the euro zone. This move, which many commentators consider brings the monetary union a step closer to becoming a “banking union”, was the result of months of negotiations between Europe’s finance ministers. Germany overcame its initial reluctance after a compromise was reached over the fate of smaller banks: the ECB will not directly police institutions with under €30 billion in assets, but only intervene if there are signs of wrongdoing.

This agreement answers a call for greater regulation that has grown ever louder since the start of the financial crisis in 2007: in August of that year, the ailing German lender IKB was the first of many banking institutions to announce that it had freely invested large amounts in the highly hazardous American subprime market, leading to numerous state bailouts across the sector.

Newspapers here in Germany only marginally covered this change in policy, owing, rather appropriately, to a deepening scandal at the heart of the Deutsche Bank, a global banking and financial services company headquartered in Frankfurt. Members of the bank’s management board are now under investigation over suspicions of widespread tax evasions. These latest revelations bolster a growing movement in Germany pressing for systemic reform of banks and far greater oversight of their activities. The EU’s agreement meets some of these demands.

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