Europe is putting the finishing touches on a new banking union, with the aim of restoring confidence in the euro area's banks, reviving lending and ensuring the common currency's survival. It's a step forward that doesn't go nearly far enough.
In approving a raft of banking-union legislation this week, the European Parliament has ratified an important understanding: If the member states of the euro area want to share a currency, they'll have to share some risks and responsibilities. Among other things, they must pool the resources needed to rescue a bank whose collapse could overwhelm a government's finances, as well as create a central authority to supervise banks throughout the euro area.
Unfortunately, the new laws fall short. Consider the Single Resolution Fund, set up to help recapitalize banks if their losses exceed what their shareholders and creditors can absorb. It will contain 55 billion euros, with authority to borrow more in an emergency. The euro area's largest banks have assets exceeding 1 trillion euros, and borrowing from private investors would be difficult in a crisis. Rescuing a bank that big would require a lot more money.