Sunday, March 31, 2013

Risk Analysis - EU Banking Union

There are approximately 6,000 banks spread across the 27 nations/member states of the EU.  They are not subject to centralized supervision/regulation, not subject to a centralized resolution mechanism, nor protected by a centralized safety net.  Basic probability theory would seem to suggest that 16% of these 6,000 banks should have little or no issues, 68% will muddle along, and a trailing 16% can be expected to struggle.  The potential for a banking catastrophe to significantly impact the world's largest economy, which has a combined annual GDP of approximately 16 trillion USD, is exacerbated by a lack of unity regarding supervision and monetary policy.

Berlin, Paris, and London appear to be, in many ways, conflicted about this state of affairs.  Politicians, of all nationalities, continually seek maximum flexibility in allocating resources to their supporters. Historical events such as the Hundred Years War, WWI, and WWII have left their mark upon European society as a whole however.  With the recent events in Cyprus, Greece, Ireland, Portugal, and Spain fresh in everyone's mind, the European Central Bank gained provisional oversight for 150 banks on the 19th of March 2013. These 150 banks manage approximately 80% of the EU's assets.  Economic and Monetary Union, defined by the European Commission as a single market with a common currency and monetary policy, continues to be a work in progress.


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