“A complete Banking Union is essential for the future of the Economic and Monetary Union and for a financial system that supports jobs and growth.”

Valdis Dombrovskis
Valdis DombrovskisCommission Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union

“The completion of the Banking Union is about making sure that the European banking sector is one banking sector. We need to make sure that when an investor looks at banks in Europe, they see a European bank – whether they see it from Milan, Frankfurt or Paris.”

Jean Pierre Mustier
Jean Pierre MustierPresident of the European Banking Federation

“Good supervision is based as much on judgement as on rules. Supervisory judgement is crucial in order to accommodate the individual situation of each bank; it should not be confined by overly detailed rules. In particular, this is crucial in a rapidly changing financial landscape in which rules and regulations simply cannot keep up. Here, we need to thoroughly understand evolving risks within and across banks, and we need to address them by taking a dynamic and forward-looking supervisory approach.”

Andrea Enria
Andrea EnriaChair of the European Central Bank’s Supervisory Board
Completing the Banking Union

The banking union is an important step towards a genuine Economic and Monetary Union. It allows for the consistent application of EU banking rules in the participating countries. The new decision-making procedures and tools help to create a more transparent, unified and safer market for banks.

The need for a banking union emerged from the financial crisis of 2008 and the subsequent sovereign debt crisis. It became clear that, especially in a monetary union such as the euro area, problems caused by close links between public sector finances and the banking sector can easily spill over national borders and cause financial distress in other EU countries.

The purpose of the Banking Union
  1. More transparent by consistently applying common rules and administrative standards for supervision, recovery and resolution of banks
  2. Unified by treating national and cross-border banking activities equally and by delinking the financial health of banks from the countries in which they are located
  3.  Safer by intervening early if banks face problems in order to help prevent them from failing, and – if necessary – by resolving banks efficiently
The banking union has currently three pillars

The two pillars rest on the foundation of the single rulebook, which applies to all EU countries. A third pillar contemplating a common deposit insurance for the banking union is being currently contemplated.

Single Supervisory Mechanism

The Single Supervisory Mechanism (SSM) is a system of banking supervision for Europe which was created as the first pillar of the Banking Union by Regulation 1024/2013. It comprises the ECB and the national supervisory authorities of the participating Member States. The handover of supervisory responsibilities from the Euro Area National Competent Authorities to the ECB was effective on 4 November of 2014 after a comprehensive impact assessment and a thorough asset quality review exercise. The SSM regulation contemplates the possibility of joining the ECB supervision for Member States whose currency is not the Euro.

Single Resolution Mechanism

The main purpose of the Single Resolution Mechanism is to ensure the efficient resolution of failing banks with minimal costs for taxpayers and to the real economy. A Single Resolution Board will ensure swift decision-making procedures, allowing a bank to be resolved over a weekend. As a supervisor, the ECB will have an important role in deciding whether a bank is failing or likely to fail.

European deposit insurance scheme

In November 2015 the Commission proposed to set up a European deposit insurance scheme (EDIS) for bank deposits in the euro area. EDIS is the third pillar of the banking union. This proposal was adopted as a part of a broader package of measures to deepen the economic and monetary union, and complete the banking union.

The EDIS proposal builds on the system of national deposit guarantee schemes (DGS) regulated by Directive 2014/49/EU. This system already ensures that all deposits up to €100 000 are protected through national DGS all over the EU.

EDIS would provide a stronger and more uniform degree of insurance cover in the euro area. This would reduce the vulnerability of national DGS to large local shocks, ensuring that the level of depositor confidence in a bank would not depend on the bank’s location and weakening the link between banks and their national sovereigns.

Banking Union pillars - EC scheme

Banking Union pillars – EC scheme

Single Rulebook

This set of rules provides legal and administrative standards to regulate, supervise and govern the financial sector in all EU countries more efficiently. It includes rules on capital requirements, recovery and resolution processes and a system of harmonised national Deposit Guarantee Schemes.

ECB, Single Rulebook, Single Supervisory Mechanism

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