Europe’s banking union is set to face a challenge in Germany’s constitutional court, a development that threatens to generate renewed uncertainty over one of the main responses to the eurozone’s financial crisis, the Financial Times reported. Five German academics have filed a case claiming that the EU’s banking union is illegal under German law because it was created without the necessary treaty changes.

Ireland has “no chance” of securing a deal on its legacy bank debt, one of the most influential figures in German politics has told the Irish Times. Joachim Pfeiffer, who is the economic policy spokesman for the parliamentary group of the ruling Christian Democrats, said the euro zone’s new bailout fund had not been established for nor would be it used for retroactive bank recapitalisation. “There is no chance Ireland’s legacy assets will be paid by the European Stability Mechanism (ESM).

Deutsche Bank AG and BNP Paribas SA, which hold almost half of the hard-to-value assets on the books of the euro area’s 10 biggest banks, are facing a reality check that could impose losses, Bloomberg News reported. As part of its review of 128 lenders, the European Central bank is studying less-actively traded loans and securitized products that banks value with minimal external data. The unprecedented scope of the exercise gives the ECB, which is taking on a supervisory role this year, insight that has eluded investors: comparing how the biggest investment banks value complex assets.

Britain’s Serious Fraud Office said on Friday that it would pay 3 million pounds, or about $5.1 million, to settle civil claims brought by a property developer following a flawed investigation into the collapse of the Icelandic bank Kaupthing during the financial crisis, the International New York Times DealBook blog reported.

Espírito Santo Financial Group SA, which holds 20% of Portuguese lender Banco Espírito Santo SA, has filed for creditor protection in Luxembourg, becoming the third company in the group to do so in less than two weeks, The Wall Street Journal reported. "Espírito Santo Financial Group SA has asked the Luxembourg courts for controlled management following the company's conclusion that it is unable to meet its obligations under its commercial paper program and obligations associated with the company's stand-alone debt obligations," it said in a statement.

The loophole that allowed Irish banks not to disclose their property losses during the crash has finally been closed, the Irish Times reported. Under new international accounting rules, which will take effect in 2018, banks will be obliged to provision for souring loans much earlier. The Irish banking meltdown in 2008 on the back of the collapse of Lehman Bros in the US highlighted how little capital banks held to cover a slump in the value of the assets on their books, forcing the public to bail out many lenders.

Highlighting the risk of investing in startups, goodz GmbH, a Berlin based company that did an equity crowdfunding round this past Spring, has filed for bankruptcy, Crowdfund Insider reported. goodz was an “e-boutique”, launched in February 2014, that featured cutting edge products in a curated e-commerce platform that was determined to target only responsible and well made products. The company was founded by Jeffrey van Ede, the former VP of Sony Europe and CEO of Sony Germany. The crowdfunding campaign on Seedmatch raised €100,000 from 134 investors.

Austria's upper house of parliament passed a law on Thursday that will wipe out the claims of subordinated debt holders in Hypo Alpe Adria, Reuters reported. The law, which enters uncharted territory for debt markets because the creditors had guarantees from Hypo's home province, had been expected to pass after being approved by the lower house of parliament earlier this month. Read more.

A strong start to the tourist season helped Spain’s unemployment rate fall to its lowest in two years while two banks with large local customer bases said business had picked up, fuelling hopes the country’s economic revival is gathering pace, the Irish Times reported. With a minister suggesting the government might raise its GDP forecast, data showed joblessness fell at the fastest quarterly rate on record between April and June.

The fate of one of the biggest banks in the European Union’s poorest country, Bulgaria, remains hostage to a political crisis, which caused the prime minister’s government to resign on Wednesday, the International New York Times reported. The resignation of Prime Minister Plamen Oresharski and his cabinet, which had been expected for weeks, comes as Bulgaria’s worst banking crisis since the 1990s threatens to take an economic toll on local businesses and foreign investors.