The European Central Bank as a Policy Entrepreneur within Banking Union

Introduction: The European Union, together with the euro zone, negotiated a set of new policies and institutions on banking union from 2012 onward to enhance financial stability and resilience within the European economy. These policies and institutions comprise the Single Supervisory Mechanism, the Single Resolution Mechanism, a European Deposit Insurance System, and a European public backstop mechanism. These individual items represent parts of a financial stability architecture that Europe needs to combat crises and prevent contagion before, during and after the onset of a crisis. Supervision focuses on crisis prevention through the application of prudential standards. Resolution and deposit insurance systems help to prevent a bank’s collapse from initiating contagion: inflicting fatal damage on other banks, or instigating panic. Finally, public backstops provide a lender of last resort function to the banking sector as a whole when all else fails