European Banking Union

Prof. José Manuel Campa, IESE Business Schoolwedfawdfasdfasd

01/12/2013 Barcelona

Why does Europe need a banking union?

- The EU banking sector is bigger than that of the US and Japan*, so it is crucial that we ensure this sector is as healthy as possible.
- Many banks in the EU have sizable assets that are greater than the GDP of their home country**.
- There is not a level playing field: banks are affected by the solvency of their country, which differs from one place to the other. It means potentially good banks are having difficulty because of where they are situated.
- EU already has common financial rules – so it needs a common supervisor.

Why does Spain need a banking union?

- Spain’s sovereign debt is perceived as weak, which is polluting the credit quality of its banks.
- A banking union would break the link between sovereign debt and banking risk.
- Real estate market – Spain is starting to receive foreign investments again, especially in high-quality assets (such as prime commercial real estate, five star hotels etc.) The hope is a banking union would give more stability and credibility to help foster growth within the Spanish real estate market.

What can we expect in the next years?

- The assets quality review must generate confidence. Next 12 months are crucial to improve the financing conditions in the Euro area.
- Approval of the resolution rules (there is a proposal, and a group of experts working on this).
- Threat: the real economy (another recession could jeopardize the banking union).

Graph 1: Comparison between EU, US and Japan banking sectors