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Single resolution mechanism

The 2008 financial crisis exposed many problems in the EU's banking sector. Many of these were serious and taxpayers ended up coming to the rescue. It became clear that, particularly in the euro area where countries shared a currency, action would need to be taken at EU level rather than relying on national policy measures.

The EU therefore took action to ensure that banks' behaviour would never again undermine the foundations of the financial system by proposing the creation of a Banking Union. The EU's Banking Union comprises:

  • the Single Resolution Mechanism (SRM) and
  • the Single Supervisory Mechanism (SSM).

The SRM comprises:

  • a new resolution board which is responsible for drawing up resolution plans and resolution schemes for banks in bad health.
  • a single resolution fund to help finance the resolution of banks. This will be funded by the banks themselves and should amount to 1 % of insured deposits within the participating countries by 2024.

The SSM, the second pillar of the Banking Union, gives the European Central Bank direct supervisory powers over the euro area's banks, although smaller banks remain under the direct responsibility of national supervisors.