Ending Uncertainty: Recapitalisation of Banks Supervised by the SSM

The European financial system is plagued at present by two major sources of uncertainty. First, there is still mistrust over the quality of banks" balance sheets. Second, major uncertainty remains about the rules that will apply to bank recapitalisation, bank restructuring and bank resolution in 2014 and in years to come. The fact that the European Central Bank is due to become the single supervisor for euro-area banks, and that it will conduct a far-reaching preliminary assessment of banks" balance sheets, has the potential to greatly reduce the first uncertainty, because a centralised assessment will make balance-sheet information more transparent, comparable and credible. In this paper, we look at the open question related to this fundamental step in the construction of the European Banking Union, highlighting the challenges and offering suggestions about the policy priorities.