Publication

This paper examines the theoretical foundations of establishing a European banking union in the eurozone and the potential legal and economic problems caused by such a move. For example, the author points out the persistence of home bias: where governments compete on funding costs by supporting ‘their’ banks with massive state aids, which distorts the playing field. The author proposes two remedies to deal with such problems: 1) a common (unlimited) financial backstop to a privately funded recapitalization/resolution fund and 2) a blanket prohibition on state aids.