If the institution responsible for ensuring the financial soundness of banks simultaneously influences banks’ financing conditions via its monetary policy, conflicts of interest may arise. Besides, the resolution of banks implies intervening in property rights, which requires democratic accountability. If the ECB is to be tasked with supervising European banks, there will have to be a strict separation of monetary policy and supervision.
Such a separation will be difficult from both a legal and an organisational point of view. In this respect, there still are questions that need to be resolved. A banking union will contribute to financial stability, if its design preserves sound incentives for all actors involved. This holds true not only for future risks, but also for risks that have already materialised.