IMF demands details on EU banking union

Tim Wallace
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THE EU must lay out a careful plan towards a banking union, ironing out disagreements and preparing thoroughly if the new system of regulation is to work smoothly, the International Monetary Fund (IMF) warned yesterday.

A lack of good staff, a need for increased cooperation between national authorities and determining the exact nature of the central regulator’s powers are all challenges to the end goal, it said.

The global finance advisor approves of the aims of the banking union, as the national arrangement of financial supervision, resolution and safety nets struggled to cope with the credit crunch.

Banks became unwilling to lend across borders to areas where funding was scarce and lending and deposit rates now vary widely across Europe – something the IMF is keen to stop happening again.

“Single supervision should reduce national distortions, bring a uniformly high standard of oversight, and mitigate the buildup of concentrated risk that compromises stability for all,” said Rishi Goyal, who wrote the report. “And moving responsibility for potential financial support to the supranational level would de-couple banks’ prospects from that of sovereigns with weak finances, protect individual sovereigns from banking sector weaknesses, and thus enhance confidence.”

But the IMF warned there are challenges ahead, as bringing non-euro members into the union raises tough questions over the structure of the safety net.