A European banking union means little unless there is greater consultation on the regulation of cross-border banking groups between home and host nations, and not just in Europe.

The European Parliament voted in April to approve a single rule-book for a banking union to include eurozone members, and any non-euro EU countries that want to join. But just days earlier, a decision with Europe-wide implications appeared to have been taken with little international discussion. National Bank of Greece (NBG) and Eurobank, two of the largest banks in Greece, announced that their planned merger had been suspended by the authorities. The two banks are to be recapitalised separately as part of the eurozone bail-out of Greece.

The merged entity would have represented about half the Greek banking sector by assets. Coming on the heels of the chaotic bail-out in Cyprus in March, this sudden merger suspension raises important questions about exactly how a banking union would operate. The term ‘union’ does not seem appropriate for a situation in which creditor nations simply decree the fate of systemic banks among the debtors.

And what happens in the eurozone has implications beyond its borders. In Romania, Bulgaria and Serbia, NBG and Eurobank have market shares of more than 10% between them. Yet the authorities in these countries were not consulted about the fate of the two banks that play such an important role in their local economy. 

Little seems to have changed since November 2011, when the Austrian National Bank provoked an angry response by apparently imposing restrictions on Austrian banks’ extensive lending in central and eastern Europe, again without consulting the host country supervisors. It is little wonder that Erik Berglof, chief economist at the European Bank for Reconstruction and Development, is advocating some mechanism to include wider Europe – even non-EU countries – in the decision-making of the banking union.

Of course, lack of co-operation is by no means restricted to Europe. The Indonesian authorities in May approved a bid for Bank Danamon from Singapore’s DBS. But the approval comes with an important condition – the Singaporean authorities should start granting licences to Indonesian bank subsidiaries. As a senior executive from Bank of America laments in this month’s Agenda interview, five years on from the banking crisis has moved us little closer to a supervisory process that genuinely matches the cross-border nature of modern banking.

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