TH: Draghi warns against half-baked banking reforms
European Central Bank President Mario Draghi has urged policy makers to complete the integration of the European banking sector with Europe-wide mechanisms for insuring customer deposits and winding up failed banks.
Speaking one year after the ECB took the reins as the eurozone's banking supervisor, Mr Draghi said on Wednesday that the idea of "banking union" was envisioned with three "pillars", namely a single supervisor, a single resolution mechanism and a uniform deposit-insurance system. The type of deposit-insurance system "remains to be specified," Mr Draghi said.
"It is now high time that these other aspects of banking union are also completed," said Mr Draghi.
Failure to do so would make "the same mistake that was made when the euro was introduced... [when] the consequences of having a single currency weren't fully reflected in the union's institutional design. Internal inconsistencies made our union much more vulnerable than it needed to be when an external shock hit it."
The comments from the ECB's boss is just the latest indication of the central bank's concern that policy makers are dragging their feet over further reform of the European financial system. European Union leaders failed to make a specific reference to the banking-union project at a summit last month.
While ECB took on its supervisory role a year ago, and the single resolution mechanism will start next year, a common deposit insurance scheme seems far from fruition. Part of the problem is that Germany, the eurozone's largest economy, is critical of an EU bank deposit-guarantee system, as Berlin says this would lead to further mutualization of bank risks.
Mr Draghi said the reforms are a prerequisite for financial stability.
"To ensure that deposits are truly as safe everywhere across the euro area, the likelihood that a bank fails has to be independent of the jurisdiction where it is established," said the ECB's president. "Resolution has to follow the same process in the event that a bank fails. And, when push comes to shove, depositors must be afforded similar protection wherever they are located."
Mr Draghi was speaking in opening remarks at a conference marking the anniversary of the ECB's role as the eurozone's banking supervisor.
