New push needed to complete stalled EU banking union - Villeroy

Reuters

Published Sep 10, 2021 10:26

PARIS (Reuters) - European efforts to build a more unified cross-border banking system have ground to a halt over opposition to deposit guarantee plans, France's central bank head said on Friday, urging a new push to complete the project.

In a speech at a conference in Slovenia, Bank of France Governor Francois Villeroy de Galhau said Europe's banking sector remains fragmented, with lenders reluctant to merge and scale up to better take on foreign competition, increasingly from Wall Street peers.

"Banking union now lacks momentum and remains incomplete. Let us be frank: the project has come to a complete standstill," Villeroy said.

EU governments created a single banking supervisor and a single bank resolution mechanism for lenders that fail in response to Europe's sovereign debt crisis a decade ago.

But efforts to complete the project have floundered over plans for an EU-wide deposit guarantee, which is particularly sensitive in countries like Germany where there are concerns about being exposed to the risks of weaker banking systems elsewhere in Europe.

"We should neither relax now that the banking crisis is mostly over, nor wait for the next crisis to act," Villeroy said. "It is precisely because we are not in a crisis situation that we should move forward now."

In the face of "intractable opposition" to a fully-fledged deposit guarantee mechanism, he suggested changing its name from EDIS currently to something like the "common deposit mechanism".

While national deposit guarantees would still benefit from support under the shared mechanism, foreign bank subsidiaries could be affiliated to the guarantee system in their home country, shielding the host, Villeroy said.