Eurozone banking union discussions are full of questions about the scope of Eurozone micro-prudential bank supervision. Yet, this article argues that there is surprisingly little debate on the macro-prudential supervision that is necessary to safeguard the wider European financial system. After all it is macro developments, such as rapidly rising housing prices, that lie at the heart of the ongoing crisis in Europe. To safeguard the financial system, Eurozone macro-prudential tools should be under the ECB, separate from micro-prudential functions, with input from national central banks when differentiation is necessary.
There is a strong tendency to focus on the stability and soundness of individual banks. Supervisors may thus be bogged down by the details of individual banks, while losing sight of emerging imbalances in the wider financial system. This may happen again in the building of the Banking Union. In the heated debate about the Single Supervisory Mechanism, policymakers are preoccupied with issues such as the range of supervision (Eurozone banks with assets of more than EUR 30 billion) and the division of labour between the ECB and the national supervisors. Another issue is the appropriate separation within the ECB between the monetary function performed by the Governing Council and the supervisory function executed by the newly envisaged Supervisory Board. With this pre-occupation with the micro-issues, we may miss out on the broader macro-trends in the financial system.