The European Stability Mechanism (ESM) and the European Banking Union (EBU) have reshaped the European Monetary Union (EMU). They can be considered the most important reforms in the EMU since the creation of the single currency in the Maastricht Treaty. The different nature of these two initiatives show that the EMU is now a resilient framework, where financial assistance can be provided to euro area Member States in financial difficulties through the ESM, and where there is an increased degree of institutional and substantial harmonisation of banking supervision and regulation in the euro area. Among other reflections, these two reforms have raised the question of whether financial solidarity has been enhanced in the European Union. The development of financial solidarity as a sui generis concept of solidarity is evident in the ESM and the EBU. In particular, this chapter assesses to what extent these reforms have promoted a truly organic solidarity or if they still express the self-interest solidarity of individual Member States to avoid the collapse of the euro area. The chapter suggests that, while organic financial solidarity has been substantially enhanced, the ESM and the EBU reforms still show grounds for improvement in the future.
Gianni Lo Schiavo
Like a latter-day Cinderella, the European Banking Union failed to make the original guest list when EMU formally began at Maastricht in 1992. Subsequently, however, the EBU went on to have its status transformed, gaining star billing. The significance of its belated creation has impressed scholars and participants alike. This article looks at the reasons for its initial exclusion, and the grounds for its then seemingly-inevitable subsequent eventual incorporation into the euro area structure in the form which it has taken. It also considers the elements which make the EBU: the Single Supervisory Mechanism, the Single Resolution Mechanism and the EBU's deposit insurance aspect. The future prospects of the EBU are then considered, and conclusions on the relationship between the EBU and EMU reached, with due regard being paid both to the need to update it and remain in step with broader international developments, and the need for its context to be accompanied by a Capital Markets Union.
Gianni Lo Schiavo
In the aftermath of the global financial crisis, the rapid rise of non-performing loans (NPLs) showed the fragility of the banking system and the lack of harmonized regulatory regime to address the systemic risk of failing banks. The deterioration of NPLs in the balance sheet of credit institutions represents a real concern for the supervisory authorities and constitutes a challenge for regulators and market actors. This chapter examines the supervision of NPLs taking into consideration the architecture of Single Supervisory Mechanism (SSM) and the role of European Central Bank (ECB) to monitor non-performing exposures. The new supervisory toolkit implemented in the European Banking Union aims to improve the classification of asset quality and to establish common practices to resolve NPLs. This chapter argues that the intricate structure of the preventive measures to reduce the risk of lending defines a new landscape in the prudential treatment of NPLs.