Romania in the Banking Union: Why Local Supervision of Cross-Border Banking is not Enough

by Oana-Maria Georgescu


The Banking Union has been widely debated as the panacea for breaking the vicious link between the state and the sovereign. It is a long-term project affecting both Euro and non-Euro zone countries that involves the transfer of competences to a supra-national authority, pooling of resources and the creation of new institutions. For now, the EC proposal is a no-go for non-Euro zone countries: it implies no resources (via the ESM, the European Stability Mechanism), loss in (supervisory) powers and no voting rights in the Union.

The question this note tries to answer is: should Romania join the Banking Union? If yes, under what terms: is the Vienna Initiative, not enough?

Our answer to both questions is yes, Romania should, at a minimum, join the Single Supervision Mechanism (SSM), the first element of the Banking Union and negotiate voting rights. Second, the Vienna Initiative was not enough.

The Romanian banking sector is dominated by the subsidiaries of Euro-zone banks, facing high spill-over risks from the Euro-zone parent companies. In good times, the home-host coordination problem between national regulators is best addressed within a close cooperation framework between supervisors, like the Single Supervision Mechanism (SSM), the first element of the Banking Union.

In bad times, when one multinational bank fails, it is essential to have efficient restructuring procedures for banks as well as clear ex-ante rules on how the bill of bank failure is split among the home and host country.

Full report, in Romanian, is available here.

Full report, in English, in available here.