European Deposit Insurance and Resolution in the Banking Union

Since the European Council of June 2012, ‘Banking Union' is a key item for the EU's policy agenda. This contribution outlines the state of the policy debate – identifying the elements that are missing but important from a theoretical viewpoint. We make concrete proposals as to how the missing elements could be added in the form of new European Deposit Insurance and Resolution Authority, which would work alongside the ‘single supervisory mechanism' under which the ECB assumes supervisory powers for the largest euro area banks. We also illustrate how a gradual transition could align incentives and mitigate the political resistance to a full Banking Union. Finally, we provide new estimates for how much would be needed for a European Deposit Insurance and Resolution Fund