Banking Union Needed for Financial Stability, EU Officials Say

More needs to be done to complete the euro-area banking union as fragmentation of financial systems and credit markets hold back growth, a group of European Union officials said.

While reforms have been carried out to restore the banking industry through restructuring, increasing capital and imposing new standards, further steps are needed to ensure financial stability, according to a report drawn up by the EU’s economic and financial committee, which comprises senior officials from national administrations and central banks.

“The recent agreement on a Single Supervisory Mechanism for banks also provides a first step toward a banking union, but more needs to be done in this context,” according to a report dated Nov. 29. “The banking union, including single supervisory and resolution mechanisms, provides one key element of the EU-level response and should be adopted and implemented as swiftly as possible.”

The supervisory mechanism, which gives oversight of euro-area lenders to the European Central Bank, was agreed by the EU’s 28 nations as a first step toward severing the link between bank and sovereign debt. Countries remain divided on a proposed resolution authority and have set themselves a year-end deadline for reaching a deal.

“The legacy of the crisis, deleveraging needs in the public and private sectors, fragmentation of financial systems and credit markets, sectoral restructuring and adjustment and high levels of unemployment will nevertheless continue to weigh on growth,” the committee said. The officials discussed the main priorities for European coordination of economic policies and reforms on Nov. 20 in preparation of a summit of the EU’s national leaders later this month.

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