EU leaders propose 'banking union'

The European Commission is proposing the creation of a “banking union” and a common insurance fund that would allow the EU to absorb bank failures, the Wall Street Journal reports.

From the WSJ:

The 17 countries that use the euro should set up a “banking union” that allows them to share the burden of bank failures, the European Union’s executive arm said Wednesday, as worries grew about whether Spain has the financial strength to shield lenders suffering from a meltdown of its property market. The European Commission called on the euro zone to allow its new rescue fund to directly prop up vulnerable banks—rather than pushing their home countries into full-blown bailouts. It also raised the idea of a pan-European deposit insurance fund.

More from the Canadian Press:

Europe’s attempts to address the weakness of some countries’ banking sectors has been hindered by the lack of a central authority with the power to tell banks what to do to improve their balance sheets. That power remains in the hands of the dozens of national regulators.

Highlighting the urgency of the issue, the European Commission suggested Wednesday that regulation of the entire eurozone banking sector be done centrally and that the cost of bailouts be shared.

“Ambitious steps to accelerate and deepen financial integration may be needed. Already before the crisis, it was acknowledged that the EU model of cross-border banking was not stable,” the Commission said in a report on how to deal with the financial crisis which has pushed the shared single currency to the brink of breakup.