Inducing Cooperation through the Backdoor? - The Case of Cross-Border Bank Resolution

Abstract

The Member States show particularly fierce resistance to giving up national sovereignty in favor of a EU-­level approach when dealing with failing banks. While the crisis has given some momentum to reforming the nationally based framework for bank resolution, a supranational system represents a longer‐term project even within the euro area. This paper argues that a EU legal and institutional framework for bank resolution must deal with two mutually reinforcing aspects. First, it must distribute the responsibility for dealing with failing banks that operate across borders. Second, the framework must allocate the financial burdens associated with banks’ resolution. Instead of first establishing shared responsibility for resolving cross‐border banks before addressing the issue of financing, the Commission seems to take the opposite approach. While the proposed implementation of harmonized structures for resolution financing likely increases the political feasibility of shared responsibility for banks’ resolution, the Commission’s prioritization is somewhat counter‐intuitive. The paper concludes that the Commission seeks to induce Member State cooperation through the backdoor.