The financial crisis that affected European Union's (EU) economies between 2007 and 2009 began in the United States. The crisis was due to the foreclosure of subprime mortgages that resulted in a sharp increase in losses, incurred by large banks in United States. European Union's economies were mainly affected due to the Large European financial institutions primarily adopting similar business models to those operational before the crisis in the United States. The severity of the crisis, the huge losses and costs incurred by private shareholders and bailing out banks has prompted a "Never Again " chorus (Herbamas, 2012). Several countries have since called for a review of bank supervision and regulation within the European Union. The new policies primarily concern bank liquidity, capital, and corporate structure. This paper discusses these measures while considering the imperative necessity to preserve the economic functions executed by banking and supervisory structures. It also evaluates whether the banking and supervisory structures at European Union prove to be adequate in responding to the debt crisis.
In order to respond to the debt crisis, European Union embraced the need to strengthen the policy coordination between its member states in 2011. As a means to this end, the European parliament and the council adopted "Six-pack ", a legislative package based on economic governance (Govaere, Lannon, Elsuwege & Stanislas, 2013). This package made the prevailing Stability growth and Pact (SGP) stronger, especially in the fiscal policy area. Originally, the main focus of SGP was to monitor compliance with the set targets for deficits in budgets by member states. They have also set up a similar process for their levels of public debts. A new package of legislation dubbed "the two-pack " was also set up in May 2013. According to Olsson (2009), this came into force with two main objectives: to develop budgetary coordination through the overview of a collective timeline for the budgetary process in the euro area and to improve financial and economic reconnaissance in the euro area by enhancing surveillance on member states that encounter serious financial instability.