BANKING UNION AS AN INSTITUTIONAL RESPONSE OF THE EUROPEAN UNION TO THE FINANCIAL CRISIS 2008–2009

Abstract

The Banking Union, which formally commenced its operations on 4^th November 2014, is an institutional response of the European Union to the financial crisis of 2008–2009. From the institutional economics perspective it has been a breakthrough comparable to the decision on the establishment of economic and monetary union. The aim of the paper is to analyze some institutional change related to the process of integration of banking sector in the euro zone countries within the architecture of the Banking Union. The focus of the analysis is on the fit between existing institutions, to a large extent formal one meaning legal framework to a newly introduced regulations. We employ a descriptive analysis which is frequently used as the method within new institutional economics. Through scrutiny of institutional development we come to the conclusion that the banking union is not well-designed institutional scheme for potential crisis ahead. In particular, we argue about potential weaknesses of the process due to the adjustment of new framework to the existing institutional conditions. The major risks come from complexity of previous institutional settings and replaying them with the new harmonized set of regulation that are accompanied this diversity of informal institutions in different Member States as well as not harmonized set of sanction system. However, we envisage that such changes are necessary in order to avoid externalities caused by complicated and overlapping institutional design of the Banking Union.