Bank crisis-management in the EU: old wine, old bottle and new impulses from Eurozone crisis

This paper reviews a decade-long EU effort to develop a common framework for the crisis management of cross-border banks. It shows that the post-crisis reform proposals are only marginal improvements on the pre-crisis status quo. Any breakthrough on the most contested issues related to decision-making, financing and burden-sharing during the resolution of failing banks is prevented by conflicting preferences of the key member states. The European Systemic Risk Board, European System of Financial Supervisors and the maze of multi-level soft law agreements remain too complex to work in real-time under the pressure of a financial crisis. Crucially, they also fail to address incentives of national authorities to resolve cross-border banks on a national basis that undermined multilateral cooperation on bank resolutions during the 2008 crisis. However, the ongoing Eurozone instability — that can be viewed as a crisis of economies at the Eurozone periphery as well as a crisis of banks in core EU countries that hold their debts — may facilitate deeper reforms of the EU crisis management framework. Any bail-in rules that may be introduced are as important for banks as for over-indebted countries, and the European Financial Stability Mechanism could evolve into a financing tool for restructuring of major cross-border banks. Thus this paper traces potential policy synergies as they emerge from the ongoing reform debates within the EU and globally.