As on past occasions, the agreement reached by eurozone finance ministers on the single resolution mechanism will officially be saluted as a big step towards a fully-fledged banking union. But many will be disappointed because the agreement falls short of expectations.
The mechanism is unsatisfactory from several viewpoints. The decision-making process is cumbersome and involves too many bodies. The funds are insufficient to tackle a big banking problem. The ability of the mechanism to borrow in the markets is still unclear. The period of transition to the final system is too long, at least compared to the frequency of banking crises. Overall, the separation between banking and sovereign risk – which was the main goal of the union – has not been achieved.
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