EU Nations Risk Undermining Banking Union Push, McGuinness Warns

(Bloomberg) -- A European Union push to integrate its banks is at risk of being subsumed by conflicting plans by national governments that would make a banking union less attractive, a senior official warned Tuesday.

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EU member states last week put forward a proposal that includes making it easier to wind down smaller lenders that are in trouble. The package on the so-called crisis management and deposit insurance legislation would be a key step toward building a deeper system more akin to the US.

But EU financial regulation chief Mairead McGuinness said on Tuesday that the member states’s negotiating position is “very disappointing” and would be less effective than the European Parliament’s version.

She said the commission’s proposal was aimed at ensuring banks build up sufficient capital to absorb losses. But McGuinness added the changes made by member states could lead to the resolution of more banks and reduced access to funding because of additional proposed safeguards. The uncertainty would likely push resolution authorities to continue to use national tools.

“Banking nationalism has not disappeared, and indeed it may be reinventing itself,” she said at an event in Brussels. “It is something we need to overcome and address if we want to make genuine progress on the banking union.”

Europe’s project for a banking union, in the works after the region’s financial system fractured along national lines following the 2008 credit crunch, has long stalled because of concerns from some states about sharing risk.

The amendments from the member states won’t increase financial stability, level the playing field, improve depositor protection or reduce the use of taxpayers’ money, McGuinness said, adding they would also make the system more complex.

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