Chapter 3 : Structural Reform in the Eu Banking Sector

The current EU financial system is characterised by relatively few large, interconnected and diversified banking groups. Whereas several large EU banking groups have weathered the crisis well, the EU financial system as a whole would have likely imploded due to a system-wide cascade of banking failures without the extraordinary and on-going taxpayer, government and central bank support (European Commission (2011, 2012)). The (contingent) taxpayer support to date amounts to 40% of EU GDP (€5.1 trillion parliamentary committed aid measures) and has undermined the solidity of several Member States' public finances. In the case of some Member States it has contributed to turn a banking crisis into a sovereign crisis (European Commission (2011, 2012)). This has had the effect of further increasing the fragility of the banking system since banks hold large volumes of sovereign bonds on their balance sheet and hence confidence on these banks depends on the robustness of the public safety nets).