Despite broad agreement among central bankers, policy-makers and economists that creation of a ‘Banking Union’ is essential for the survival of the euro, progress in building this union has been painfully slow. This is largely due to the protracted fights over which government will be the payer of last resort when banks fail because of bad loans made in the past. Taking a cue from Copernicus, Thomas Mayer suggests in this new CEPS Policy Brief that the impasse may be broken by turning the whole process on its head. So, instead of trying to move from common bank supervision, over to bank resolution and then on to deposit insurance, he proposes reversing the process by starting with deposit insurance, moving from there to resolution and ending with supervision.
Thomas Mayer is Senior Fellow at the Centre for Financial Studies at Goethe University Frankfurt and Senior Advisor to Deutsche Bank. This paper is an updated and expanded version of CEPS Policy Brief No. 290, entitled “A Copernican Turn for Banking Union” and published in May 2013.