Many in the market had been biting their nails at the start of this year, as they waited to see whether European member states could reach some sort of agreement on the “banking package”.
They have been waiting a long time for Europe to overhaul its rules on bank capital and resolution requirements, and had feared that the timetable could slip even further when a new set of politicians sweep into office after the EU Parliament elections in May.
On the line was an opportunity to implement a set of risk-reduction measures that some hoped would lead to greater appetite among member states to share the burden of their financial risks with their neighbours.
Better appetite for risk sharing is crucial for the EU to progress to the next phase of the Banking Union, embodied by the planned introduction of a common system of deposit protection (EDIS) across the bloc.
But any dreams that the banking package could end up leading to the finalisation of the Banking Union seemed dead on arrival when EU ambassadors published the final texts of the measures earlier this month.
Indeed, the content of the reforms gave little or no recognition to the progress already achieved in bringing banking under one roof in the EU.
One clear example of this came in the new version of the Bank Recovery and Resolution Directive (BRRD), which market participants had been watching to see how lawmakers interpreted guidance from the Financial Stability Board on how banks should distribute capital and other loss-absorbing resources within their groups.
Known in Europe as internal MREL, this process of divvying up resolution resources across a network of different sub-groups is meant to help subsidiaries continue operating if they end up facing financial difficulty.
In other words, if a banking subsidiary issues enough MREL resources to its parent then it should be able to pass losses upwards through the group and be recapitalised should it run into trouble.
This makes sense in a world where large banking operations can stretch and span across any number of different countries, even while national boundaries are still clearly delineated in political terms.
Without proper rules on internal MREL, it is easy to see how a national regulator housing a large foreign subsidiary might fear being left with a mess to clean up if the regulator of the parent bank decided to let its sub-group fail to contain losses outside of its home jurisdiction.
But there is a strong argument to say that the rules should operate differently in the European Union, where national responsibility is blurred in terms of banking supervision.
For one thing, the bloc established the Single Resolution Board in 2014 — a centralised institution that oversees all bank resolutions across the entirety of the euro area.
And there are also legal obligations within the existing BRRD that require member states to consider “the impact of any decision or action or inaction on the financial stability” of other member states.
Some market participants had hoped that the degree of integration already achieved in the EU via the Banking Union might end up being recognised in the new version of the BRRD agreed earlier this month.
This could either have been done through a waiver for internal MREL within the Banking Union, or through a scaled down requirement for foreign subsidiaries within the bloc.
But rule makers shunned these arguments when they agreed on a new text, insisting that EU subsidiaries comply fully with MREL as if they were standalone entities.
This even flew in the face of advice from the European Banking Authority in its final report on MREL, where it said that it did “not appear that the various national authorities within the EU should be considered as foreign jurisdictions”.
It is richly ironic that the EU should end up internalising the shortcomings of the Banking Union in its drafting of new rules on internal MREL.
Indeed, right there within the very package of measures designed to usher in a new era of closer financial integration among member states is a clear and unambiguous warning that, in the EU, it is still every country for itself.