But while we have made significant progress, the banking union is not yet complete. We still need a backstop for the Single Resolution Fund (SRF) to underpin its credibility, and a common fully mutualised European deposit insurance scheme – EDIS. While discussions are progressing on the SRF backstop, the negotiations on EDIS have stalled.
That is unfortunate, as both elements would improve financial stability in the euro area by increasing confidence and reducing the likelihood and cost of a bank failure. With EDIS, this would mainly happen via three channels. First, depositors would trust that their deposits are safe, regardless of the location of the bank in question. This would help break the link between banks and sovereigns.