Developments of this kind would provide more effective tools to address financial sector imbalances that are particularly dangerous within the euro area – and thus prevent negative feedback loops emerging between the financial sector and the sovereign. In this way, strengthening the euro area dimension of financial supervision would support the overall functioning of the economic governance framework.
A truly European system of financial supervision would also require a European resolution fund with a mechanism for burden sharing between Member States. Whilst this is not viable in the near term, within the euro area there is some interesting progress in this direction via the stability support facilities that have been created in the context of EU/IMF programmes for some euro area countries.