The House of Lords has released a report on the feasibility of a European banking union (Report). The Report stated that a European banking union is urgently required in order to restore credibility and stability to the euro area banking system, and to break the vicious cycle between banks and sovereign states. Furthermore, the UK has made it clear it will not participate in a banking union, which has risks of the country's marginalisation as banking union participants move towards closer integration.

The Report also found that a three pronged approach is required for the union to be effective: a Single Supervisory Mechanism, a common resolution mechanism and a common deposit insurance scheme. While the Report  stated that this model was undermined political pressure, led by Germany, it welcomed the publication of the Single Supervisory Mechanism proposals as a significant first step towards banking union. The report found that if the European Central Bank was given ultimate supervisory responsibility for every euro area bank, there must  be  no conflict of interest between the ECB’s supervisory and monetary policy tasks. Furthermore, the ECB needs to be fully accountable, both to the European Parliament and to national parliaments, in the exercise of its supervisory powers. There must be equality in the supervisory decision-making process within the ECB between euro area and non-euro area Member States who wish to participate. Equally, the role of the EBA in representing all 27 Member States must not be undermined and the Commission must defend the integrity of the single market as a whole.

The Report concluded that the Commission’s original proposals do not go nearly far enough to meet these concerns, and that it is highly uncertain whether these safeguards can be put in place within existing treaty constraints. European legislators need to decide whether treaty change is a price they are willing to pay in order to create a viable banking union. Adopting rushed and deficient legislation would be the worst of all possible outcomes.