With its Single Supervisory Mechanism and rules on bailing-in creditors in the event of bank failures, the Banking Union bolsters the banking sector’s resilience. This makes a loss of confidence in national banking systems less likely. And less danger of a fragmented financial system stabilises cross-border lending, particularly in turbulent times. A common European deposit guarantee scheme could, in theory, even heighten this confidence.
However, as with any insurance policy, one would have to make sure in this case, too, that the insurance does not encourage imprudent behaviour. Such risks can arise from carelessly granting credit to the private sector. But they can also result from providing sovereigns with too much credit.