The big idea that won't fix Europe's bank problem

Virginia

EUROPE'S banks have had a rough year: Their stock prices have fallen so low that some observers wonder whether they are viable in their current form.

Yet the most commonly proposed solution - a true banking union - is also deeply flawed.

The euro area's banking system faces numerous difficulties. These include economic growth that seems to be permanently slow, a common currency that punishes low-productivity countries, low or negative interest rates that are undermining profitability and new bail-in rules that impose losses on creditors precisely when the economy is most vulnerable.

The malaise has led to renewed calls to complete a project the euro area began in 2012: a banking union, in which member states would take joint responsibility for overseeing financial institutions, salvaging unhealthy ones and insuring depositors - much as the Federal Deposit Insurance Corporation does for banks in US states. The idea is that by sharing risks, the m…