The nirwana of a banking union!

One of the silliest arguments I have heard so far is the idea that, in a European banking union, all deposits would be insured by essentially all banks thanks to an EU-wide deposit insurance. Can anyone please name me ANY domestic banking union anywhere in the world where ALL deposits are insured? All deposits are indeed insured but there is a minor catch to it: there is a cap on the amount of deposits which are insured (and that cap is nowhere very high).

What definitely makes sense is to have a centralized supervision of banks, particularly when centralized at the ECB.

What also makes sense is for the ESM to recapitalize banks, when necessary, but that will have to be coordinated in some form or fashion with national governments. Above all: recapitalizations are not loans to banks in trouble! Recapitalizations are what the term says: new capital is put into a bank in exchange for ownership commensurate with the amount of new capital.

The absolute no-no would be to allow shareholders whose bank is de facto bankrupt today to lean back and watch how tax payers’ money is used to get their bank back in shape again!

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