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.

Why the banking union?

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 is to make European banking:
more transparent by consistently applying common rules and administrative standards for supervision, recovery and resolution of banks
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
safer by intervening early if banks face problems in order to help prevent them from failing, and – if necessary – by resolving banks efficiently
Commission communication: A roadmap towards a banking union

The elements of the banking union

The banking union has two pillars:

  • Single Supervisory Mechanism (SSM)
  • Single Resolution Mechanism (SRM)

The two pillars rest on the foundation of the single rulebook, which applies to all EU countries.

Single Supervisory Mechanism

The Single Supervisory Mechanism is a new system of banking supervision for Europe. It comprises the ECB and the national supervisory authorities of the participating countries.

Single Supervisory Mechanism

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.

A Single Resolution Fund, financed by contributions from banks, will be available to pay for resolution measures.

Single Resolution Mechanism

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.

Common Deposit Guarantee Scheme

The package of EU laws under the single rulebook applies to all EU countries. The banking union ensures that these rules are implemented consistently across the euro area and in other participating countries.