A Study On The European Banking Union

Despite the European sovereign debt crisis is getting a little bit better currently, the ups and downs, step by step startling scene still makes fresh after the crisis outbreaking in late2009. Since it gradually spreads from peripheral countries to the core countries, from the public sector to the banking system, the European sovereign debt crisis eventually becomes a European banking crisis. Furthermore, the sovereign debt crisis and the banking crisis cross-infected and mutually reinforced, which formed a negative feedback loop and seriously affected the European economy. European banks faced greater pressure and supplementary capital issues such as lack of liquidity. European banks are reluctant to lend money to each other, fearing the loss of the country’s debt risk maybe further expanded. As sovereign debt crisis became worse, European financial markets also faced huge funding gap and financing difficulties. The risk of default increased. Furthermore, severe credit crunch caused by the banking crisis tends to push up borrowing costs. As the result, the real economy, economic conditions deteriorated and counterproductive in the banks’balance sheets caused deeper, wider instability, and ultimately to bring serious negative impact on the confidence of residents, businesses and the community. All these constituted a fatal blow to the Euros. The crisis has fully exposed the European banking system risk, therefore, to solve the problem of the banking system and deal with the debt crisis became the key issues.The background of the European banking union was based upon the following reasons:I) To break the negative effect between banks with sovereign debt.Eurozone sovereign debt crisis and the banking crisis present a vicious cycle trend. As the link between banks and sovereign debt, it often makes more serious effects on the financial turmoil. The vicious cycle tends to make the situation more complicated. Through the creation of a European banking union and deposit guarantee mechanism for crisis management at EU level, it will bypass sovereignty over troubled banks as well as direct assist the liquidation of the failed bank.II) To prevent the financial market segmentation and ensure that monetary policy transmission.Financing and lending market pressure from the sovereign debt crisis and the banking crisis will lead to further split along national borders. The unified European Union’s banking mechanism will strength the supervision and achieves interest beyond a single country. In addition, it will also avoid national regulation bias and effectively prevent and monitor banking to spread. As the result, it will strengthen financial integration. By using of the European banking sector internal linkage, it will improve macroeconomic imbalances, thus ensuring a single monetary policy in the euro area is implemented more smoothly.Ⅲ) To protect the interests of depositors and taxpayers.In the framework of the European Union banking sector, setting up a fund by the financial industry can achieve self-help in the financial sector crisis, therefore reducing the risk for taxpayers and effectively protect the interests of depositors.From a proposal to setting up the real banking system is still a long way to go. Through the analysis of causes and effects of the European sovereign debt crisis, this article explores the solution to the European banking crisis. The conclusion is to form the European Union banking union. European banking union consists of three pillars, including SSM (Single Supervisory Mechanism), SRM (Single Resolution Mechanism) and UDIS (Unified Deposit Insurance Scheme). Each pillar has different responsibilities and obligations. The most urgent is to create a single regulatory mechanism. The formation of the European Union is a new development of the European integration. It will eventually push the EU towards a genuine economic and monetary union. The in-depth study of European integration will help us to identify economic trends, gaining more understanding about the process of Europe economic integration difficulties and challenges thus lay a foundation for further study of European economic integration. Through the study of the European Union banking regulation, this paper is to provide the suggestion for the reforming of China’s banking sector. China needs a powerful central bank, which can implement an effective monetary policy and establish a deposit insurance system.There are seven chapters in this paper. Chapter I is the introduction. Mainly introduces the research background and significance of the topic, literature review, the main content, research ideas and research methodology, and also pointed out the contributions and shortcomings of this study; Chapter Ⅱ is the European banking union theory analysis. Mainly includes two parts:First, the definition of the European Union’s banking sector; Second, introducing the theory of bank risk management and banking supervision; Chapter III describes and analyzes the formation of the European Union’s banking background and reasons. Analyzes the causes of the debt crisis and the European banking crisis, its impact on the European economy and the world economy, pointing out the infection and the spread of European banking and sovereign debt crisis mainly because of the European Central Bank system’s flaws, macroeconomic coordination issues, power factors influence, asymmetric shocks and the independence of ECB. There is a contradiction between the ECB and the other euro area member States. Furthermore, it also due to the ineffective supervision of central banks; Chapter IV describes the process of the formation of the European Union banking sector. This chapter analyzes the contradictions and problems in the formation of European Union banking system. The recommendation is to create the European Commission, the European Union, including a single banking supervisory mechanism and a single and unified mechanism of the deposit insurance system. The above three pillars is to construct a single regulatory regime, strengthening the official supervision of the European Central Bank to other Eurozone banks Therefore, this chapter focuses on the reasons for the establishment of a single regulatory mechanism, the main characteristics and the prospect of a single regulatory mechanisms were discussed and analyzed; Chapter Ⅴ prospects the impact of the European Unified banking system, analyzing its role in the future of financial integration in the EU, pointing out the shortcomings of the European Unified banking system from the perspective of the future emerging countries of the EU; Chapter Ⅵ point out the implication for China. This chapter discusses the challenges of the European debt crisis first. Then it analyzes the regulatory issues in China’s banking system; Chapter Ⅶ is the conclusion. This chapter further discussed the risk control of the European banking union, the responsibility sharing in liquidation disposal problems and a single source of funding mechanisms.