Lesson 4: Banking Union
Banking union has three dimensions.
• A single supervisory mechanism (SSM)
headed by the ECB enforcing a single regulatory framework/rulebook.
• A single bank resolution, restructuring and
recapitalisation mechanism.
• A deposit insurance mechanism, with
ultimately jointly and severally guaranteed
financial backing.
It seems that there will be a single supervisory mechanism, probably early in the second
quarter of 2014, headed by the ECB, immediately covering the most important 150 euro
area banks and ultimately covering all banks in
the eurozone.
Analysts say that one of the good things to
come out of the Cypriot situation is that it may
bring forward this phase of banking union.
It is not yet clear when the deposit insurance
mechanism will be put in place but it seems
that it is also likely to be implemented earlier
than previously estimated because of the outrage created by the prospect of a haircut on
insured depositors according to the March 16
Eurogroup decision for Cyprus.
German Finance Minister Wolfgang
Schäuble declared last week that banking
union was a “priority project” and promised to
press ahead with it “quickly”. Banking union
could move ahead for now by harmonising
national resolution schemes, he said. According
to Reuters, a German finance ministry official
said Schäuble’s “ideal scenario” was to secure
agreement on banking resolution before the
European summer recess, adding that without
a new EU treaty providing legal backing for a
common resolution authority, “you can work
with a network of national authorities”.
The most important dimension of banking
union is a single resolution, restructuring and
Lesson 5: Tax
compliance
The pressure for action against tax evasion has grown in the wake of
the Cyprus bailout. Finance ministers who met in Washington in April
have decided to throw their weight behind the automatic exchange of
tax information, in a sign of the intensifying crackdown on tax evasion
and banking secrecy. The drive for automatic information exchange was
given by the US, which warned of a 30% withholding tax on foreign
banks that did not inform the authorities about the US client information under its 2010 Foreign Account Tax Compliance Act (FATCA).
European governments have agreed to adopt an EU version of
FATCA, and the UK has secured similar agreements with its crown
dependencies and overseas territories. Under pressure amid a renewed
global crackdown on tax evasion and avoidance, Luc Frieden, finance
minister of Luxembourg, said that his country was willing
to expand the number of accounts covered by new
information-sharing agreements with the US and the
EU to include global companies.
Britain’s Overseas Territories,
on the other hand, have bowed to
pressure for greater tax transparency,
in a move the British government
has hailed as “a turning point in
the fight against tax evasion and
illicit finance”. The UK Treasury
announced that Anguilla, Bermuda,
the British Virgin Islands, Montserrat and the Turks and Caicos
Islands had followed the Cayman
Islands by agreeing to share information
automatically with Britain, France, Germany,
Italy and Spain.
recapitalisation mechanism which, European
leaders statements have made clear after the
case of Cyprus, will not be as people might
have imagined at the beginning of the process.
Jeroen Dijsselbloem, the Dutch Minister
of Finance and President of the Eurogroup,
expressed the hope and expectation that there
would never be any need for the European
Support Mechanism to recapitalise banks
directly.
So what seems to be dead is the specific
model of banking union that would have the
eurozone-wide taxpayer bailed in before either
the national taxpayer or the unsecured creditors of the bank. What remains very much
alive is banking union in the sense of a mutualised back-up for systemically important banks,
after both unsecured creditors and national
taxpayers have been bailed in to the fullest possible extent.
Lessons from the US
By Alexander Michaelides
T
he idea of large de