Banking union is a vital project for the future of the Eurozone. Under the current proposal, bank supervision will be centralised but national authorities will remain responsible for recapitalising troubled banks. This leaves the system susceptible to domestic political economy constraints. This column argues that such a system can fail to be welfare improving. The inefficiencies can be mitigated, however, if the banking union is accompanied by greater electoral accountability and fiscal rules that constrain debt accumulation by national governments.