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Published on October 2nd, 2012 | by Katharina Obermeier
Image © [caption id="" align="alignnone" width="566"] © By Brian Stansberry; Occupy Wall Street Protest; via Wikimedia Commons[/caption]   About a year ago, most of us first heard about the Occupy movement through the Occupy Wall Street protest in New York City. As vague and diffused as the demands and proposals of the movement were at that time, one of its main messages was unmistakable: banks had too much power and were at least partly responsible for the financial crisis, and should not be bailed out using taxpayers’ money. Apparently, the European Commission was listening. Now, almost exactly a year after the Occupy movement caught the international media’s attention, the Commission has put forward concrete proposals for forming a eurozone banking union. At first glance, this may seem like dry, bureaucratic subject matter, completely unrelated to the provocative slogans used by Occupy protesters. However, if these proposals were implemented, they would in fact form the basis for a continent-wide adoption of Occupy’s banking reform goals. The basic principle of the proposed banking union is this: all banks in the eurozone (some 6,000 in total) would come under the supervision of the European Central Bank (ECB). This institution would oversee the banks’ compliance with capital and liquidity requirements, ensuring they did not take undue risks or put the stability of the banking system in jeopardy. Supervision would extend to financial conglomerates (e.g. a firm offering services in banking as well as in other sectors, such as insurance). Perhaps most importantly, the ECB would be able to intervene early on if a bank was failing or likely to fail these requirements, making full-scale bank failure and the need for bail-outs less likely. Of course, national regulators in the eurozone are already in charge of these types of supervisory tasks, which do not  make the European Commission proposals revolutionary. However, it is important to remember in this context the problems in countries such as Spain, where national regulators cooperating with members of the government failed to prevent the catastrophic collapse of the country’s banking system. It should also be pointed out that the already existing entity for regulating Europe’s banks – the European Banking Authority – does not have the necessary competencies to provide direct supervision, as it has to go through national banking authorities. A  eurozone banking union would be instrumental in helping to prevent future financial crises in the EU. It would however also have far-reaching implications for the current crisis, as eurozone countries such as Germany have indicated that they will not allow the direct recapitalisation of eurozone banks through the European Stability Mechanism until a eurozone-wide banking supervisory body has been established. If the Commission’s proposals for forming a banking union are adopted, it would pave the way for EU funds to be used as a guarantee for weak banks in crisis-struck countries, thus easing financial market pressures. Will the Occupy movement’s goal of tighter banking regulation finally be achieved through the unlikely ally of the European Commission? That question is still open at this stage. The Commission’s proposals have to be adopted unanimously by the Council of the European Union, meaning all national governments must agree to this plan in order for it to be implemented. German officials are already questioning key elements of the proposals, while some EU member states which are not part of the eurozone, such as Poland, are clamouring for greater representation on the ECB management board, if they join the supervisory scheme. The eurozone’s banks may not be under the supervision of the ECB by mid-2013, as the Commission plans, but the development of specific proposals for better cross-border banking regulation is already a significant step forward from protests in Zuccotti Park.

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Occupy’s Legacy: Banking Union in the Eurozone

© By Brian Stansberry; Occupy Wall Street Protest; via Wikimedia Commons

 

About a year ago, most of us first heard about the Occupy movement through the Occupy Wall Street protest in New York City. As vague and diffused as the demands and proposals of the movement were at that time, one of its main messages was unmistakable: banks had too much power and were at least partly responsible for the financial crisis, and should not be bailed out using taxpayers’ money. Apparently, the European Commission was listening.

Now, almost exactly a year after the Occupy movement caught the international media’s attention, the Commission has put forward concrete proposals for forming a eurozone banking union. At first glance, this may seem like dry, bureaucratic subject matter, completely unrelated to the provocative slogans used by Occupy protesters. However, if these proposals were implemented, they would in fact form the basis for a continent-wide adoption of Occupy’s banking reform goals.

The basic principle of the proposed banking union is this: all banks in the eurozone (some 6,000 in total) would come under the supervision of the European Central Bank (ECB). This institution would oversee the banks’ compliance with capital and liquidity requirements, ensuring they did not take undue risks or put the stability of the banking system in jeopardy. Supervision would extend to financial conglomerates (e.g. a firm offering services in banking as well as in other sectors, such as insurance). Perhaps most importantly, the ECB would be able to intervene early on if a bank was failing or likely to fail these requirements, making full-scale bank failure and the need for bail-outs less likely.

Of course, national regulators in the eurozone are already in charge of these types of supervisory tasks, which do not  make the European Commission proposals revolutionary. However, it is important to remember in this context the problems in countries such as Spain, where national regulators cooperating with members of the government failed to prevent the catastrophic collapse of the country’s banking system. It should also be pointed out that the already existing entity for regulating Europe’s banks – the European Banking Authority – does not have the necessary competencies to provide direct supervision, as it has to go through national banking authorities.

A  eurozone banking union would be instrumental in helping to prevent future financial crises in the EU. It would however also have far-reaching implications for the current crisis, as eurozone countries such as Germany have indicated that they will not allow the direct recapitalisation of eurozone banks through the European Stability Mechanism until a eurozone-wide banking supervisory body has been established. If the Commission’s proposals for forming a banking union are adopted, it would pave the way for EU funds to be used as a guarantee for weak banks in crisis-struck countries, thus easing financial market pressures.

Will the Occupy movement’s goal of tighter banking regulation finally be achieved through the unlikely ally of the European Commission? That question is still open at this stage. The Commission’s proposals have to be adopted unanimously by the Council of the European Union, meaning all national governments must agree to this plan in order for it to be implemented. German officials are already questioning key elements of the proposals, while some EU member states which are not part of the eurozone, such as Poland, are clamouring for greater representation on the ECB management board, if they join the supervisory scheme. The eurozone’s banks may not be under the supervision of the ECB by mid-2013, as the Commission plans, but the development of specific proposals for better cross-border banking regulation is already a significant step forward from protests in Zuccotti Park.

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About the Author

Katharina Obermeier

Katharina considers herself a German-Canadian hybrid. She grew up in Germany and completed her BA in International Relations at the University of British Columbia in Vancouver, Canada. Politics, especially in relation to concepts of nationality, have always fascinated her, and she is particularly interested in international political economy. During her studies, she was an avid participant at Model United Nations conferences, and helped welcome international exchange students to her university. She is currently completing an internship at a Brussels-based trade association and hopes to work in European affairs in the future. In her political writing, Katharina marries social democratic principles with a keen interest in the European Union and its implications for European politics and identity. She writes to counteract simplistic ideas about politics and economics, continuously attempting to expose the nuances and complexities involved in these subjects.



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