Bank of Portugal sees banking union "glass half-empty", urges more

LISBON, Sept 25 (Reuters) - The European banking union is still far from being complete and urgently needs additional tools as the single supervision mechanism still lacks robustness to handle any future crises, the deputy governor of the Bank of Portugal said on Monday.

Elisa Ferreira told a conference on risk that the lack of a common deposit insurance scheme was a particular defect and had led to “severe inconsistencies” during the rescue in June of Spain’s Banco Popular.

The rescue wiped out shareholders and junior bondholders, while Popular was sold for a nominal one euro to larger rival Banco Santander. In the same month, Italy wound down two banks using national legislation and taxpayers’ money, drawing criticism from officials in several European countries.

“As for the European (supervision) architecture, and in particular what concerns the banking union, we still have a glass that is half empty ... additional tools still need to be developed,” Ferreira said.

“Otherwise we risk fragmentations of the single market and not having a genuine banking union.”

She said the while the establishment of the European Stability Mechanism during the euro zone debt crisis, the single rule book, and other pillars of the banking union were major achievements, they are still not sufficient.

“One should not think that it can work without the remaining (parts), it can not,” Ferreira said, pointing to fragilities such as limited ESM recapitalisation instruments and calling for the implementation of the third pillar of the banking union – a common deposit insurance scheme.

Reporting By Sergio Gonaclves, writing by Andrei Khalip; Editing by Catherine Evans