The road towards a banking union

To ensure a secure banking system and avoid public money being used to rescue failed banks, the European Union is establishing a banking union.

ACT

Communication from the Commission to the European Parliament and the Council A Roadmap towards a Banking Union (COM(2012)510 final of 12.9.2012) (not published in the Official Journal).

SUMMARY

The 2008 financial crisis has prompted the EU to adopt some major financial regulatory reforms. However, these are not in themselves sufficient. To guarantee a robust system and protect taxpayers’ money, common European systems are needed.

The banking union, now being put in place, is designed for both eurozone Member States and other EU countries that want to participate.

It has 3 basic strands:

Bank supervision

In force since November 2013, EU legislation establishing a single supervisory mechanism gives the European Central Bank (ECB) responsibility for supervising banks - in close cooperation with national supervisors.

The ECB will directly supervise the biggest banks. National supervisors will remain in charge of the rest - but the ECB will be able to supervise them if necessary.

The ECB will ensure the new banking prudential rules, which, for instance, require banks to hold more and better capital, are applied consistently. These apply to all banks in the 28 EU countries.

The ECB is currently assessing the financial health of banks, which will be complemented by a stress test carried out in close cooperation with the European Banking Authority (EBA).

Bank restructuring

This will be based on a single resolution mechanism (SRM), applicable from 1 January 2015. It should ensure creditors and shareholders will be the first to contribute to restructuring banks in crisis - a bail-in as opposed to a bailout (where banks are saved using taxpayers' money).

It will include:

• a European resolution authority that will be in charge of restructuring ailing banks efficiently and with minimum costs for taxpayers and the real economy;
• a single resolution fund that could support restructuring plans adopted by the new authority. Banks would finance it in advance.

The SRM will be governed by 2 texts: a SRM Regulation covering the main aspects of the mechanism and an intergovernmental agreement related to some specific aspects of the Single Resolution Fund.

Protection of depositors’ money

For the time being, there are no plans to create a common deposit guarantee system. Instead the legislation requires every EU country to establish a national deposit guarantee fund, financed in advance by banks. The funds can lend money to each other on a voluntary basis.

RELATED ACTS

Council Regulation (EU) No 1024/2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (Official Journal L 287 of 29.10.2013).

1022/2013 of the European Parliament and of the Council amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards the conferral of specific tasks on the European Central Bank pursuant to Council Regulation (EU) No 1024/2013 (Official Journal L 287 of 29.10.2013).

Proposals

Proposal for a Regulation of the European Parliament and of the Council establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Bank Resolution Fund and amending Regulation (EU) No 1093/2010 of the European Parliament and of the Council (COM(2013)520 final - not published in the Official Journal).

Proposal for a Directive of the European Parliament and of the Council on Deposit Guarantee Schemes (recast) (COM(2010)368 final) (not published in the Official Journal).

Proposal for a Directive of the European Parliament and of the Council establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directives 77/91/EEC and 82/891/EC, Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC and 2011/35/EC and Regulation (EU) No 1093/2010 (COM(2012)280 final) (not published in the Official Journal).

Last updated: 09.03.2014