In this regard, the reform in late 2022 of the Code of Good Banking Practice (CGP) focuses precisely on orderly debt restructuring for household segments with a high degree of socio-economic vulnerability. The Banco de España will assess its implementation as more data become available. How different banks and financial systems position themselves against these risks will determine how resilient they are. In this regard, amid such high uncertainty, including that surrounding the degree of monetary policy tightening, Spanish banks must implement a prudent provisioning and capital policy. A policy that earmarks part of the short-term increase in earnings to bolster the sector’s resilience would thus put it in a better position to absorb any potential losses should the worst risk scenarios materialise. From a European standpoint, it should also be noted that a smoother-functioning euro area with improved governance would contribute hugely to making the European financial system less vulnerable. In particular, the creation of a fully mutualised European deposit insurance scheme would boost the confidence of citizens and the markets and contribute to increased risk-sharing in the euro area and, thus, to reducing potential episodes of fragmentation. 9  The values within this range are obtained based on different assumptions regarding the percentage of debt that matures in the short term and is refinanced. The 6.8 pp impact at the upper end of the range assumes the full renewal of the debts maturing in the short term.
Three reasons for delay, and four reasons for hope So why have these two major European projects struggled to get off the ground fully six years after they were launched? After a strong initial impulse which quickly gave birth to an effective first pillar – supervision –, the Banking Union has been on hold for several years due to lengthy and not very productive discussions, in particular on the third pillar (deposit insurance scheme). When it comes to the CMU, its first action plan back in September 2015 had already identified a number of improvements that are still valid today; its main weakness was not in its content but in the lack of implementation. Let me start with three bad reasons for that. A first explanation would be that Europe only moves forward in times of crisis. This is partly true: the Banking Union and the CMU are two examples of 1/4  BIS central bankers' speeches  initiatives taken in the aftermath of the financial and sovereign debt crises. Yet we should not wait complacently until the next crisis to act; it is precisely because we are not in an acute crisis situation that we should move forward now. Second, both initiatives can be described as arid and technical. This is not an issue in itself; we are accustomed to complex topics. But here we may have created a maze of technical and interconnected sub-topics, and lost sight of their original political purpose.