The First Steps Toward the Banking Union’s Implementation and Effects on the Eurozone Banking Sector

Abstract

Abstract The banking union in Europe was proposed in 2012 as one of the key measures to address the structural weaknesses of the Economic and Monetary Union. It was introduced at a time of a serious regulatory overhaul of the financial sector in all developed parts of the world. Now that its implementation has started with the launch of the Single Supervisory Mechanism and the start of the Single Resolution Mechanism it is time to review what is the state of play of the elements of the banking union and to analyse the effects of its implementation on the Eurozone banking sector. The paper looks at each one of the pillars of the banking union. Then the author analyses the current state of the Eurozone banking sector and tries to identify how the introduction of the banking union has influenced on the developments within that sector. The paper argues that the Eurozone’s banking sector has become more stable, better capitalised and its risks more controlled than in 2008 but this is at the expense of profitability. The Eurozone banking sector continues to exhibit a high level of non-performing loans. In part, this can be attributed to the banking union and the challenges it poses to the banking sector.