Why a eurozone banking union is messy for Britain

Canary Wharf What impact would a European banking union have on London's financial centre?

This is probably one of those "What did you think of the play, Mrs Lincoln?" notes.

But there are serious ramifications for the UK of the European Commission's confirmation that it believes a full European banking union is a necessary for monetary union to work in the long term.

This banking union would involve centralised supervision of euro area banks and a eurozone-wide deposit protection scheme - which in effect would involve some sharing by euro members of the costs of insuring retail deposits against loss.

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Here is the blindingly obvious thing: the UK is not a member of the eurozone.

So, on the European Commission's model, the UK would no longer have a significant voice over decisions affecting the European banking industry. They would be taken by eurozone ministers and regulators, meeting separately from the rest of the European Union.

What is unclear is whether this would mean that powers to regulate and supervise the UK's banks would be repatriated to this country, or whether our banks, regulators and government would be bossed around by eurozone governments acting as a homogeneous unit. Both outcomes are possible.

None of this is trivial - not least because George Osborne's banking policies, which include putting a ring-fence around retail banks and giving the Bank of England's Financial Policy Committee the power to vary banks' capital ratios, are out of step with what most of the eurozone wants and plans.

I say none of that is trivial, in an absolute sense. But perhaps in a relative sense British qualms should be seen as nugatory - in that if banking union helps to keep the eurozone from imploding, maybe a bit of single-market messiness is a price worth paying.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 288.

    Eurozone banking zone is messy for Britain?

    No, Robert. All banking is messy everywhere - always has been. What all journalists, politicians, bankers fail to point out is that all this money belongs to us little people. You know, the ones still with a job who pay taxes?

    Running around like idiots solves nothing. It's the same money - it's just held by a few buying up land and resources.

  • rate this

    Comment number 287.

    284. supercalmdown

    "Ah, laying the foundations for their next heist, I mean crisis."

    Good point, nobody is yet fixing the speculation one way bet - we must do that too if we are ever to recover.

    We have to prevent uncontrollable speculative market swings that destabilise the real economy.

    We really must start talking seriously about Exchange Control!

  • rate this

    Comment number 286.

    280.WolfiePeters "I oppose the idea that we should opt for suicide in the name of Euro solidarity."

    How bad do you want it to get? Unless we are full committed to Euro it may fail and then the UK will suffer an estimated 20% drop in output (GDP) with dire consequences. Isn't it better to join to try to prevent it happening? Consider if it is not solidarity, but self-interest to join!

    400 ch!!

  • rate this

    Comment number 285.

    275. zipperty

    "Why should a rat wish to board a sinking ship."

    Yes, if the other option was far worse!

    "500m out of a world of 6B?"

    500m of the wealthy top billion. The EU is the wealthy market compared with the rest of the planet. It may not be growing, but it is wealthy.

    Why deliberately cut the UK off from the market we are presently semi-detached from - better to join in!

  • rate this

    Comment number 284.

    Ah, laying the foundations for their next heist, I mean crisis.


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