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Single supervisory 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. This would ensure stronger and more strictly supervised banks.

The EU's Banking Union comprises:

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

The SSM, composed of the ECB and the national bank supervisors from the participating countries, became operational in November 2014. The European Central Bank (ECB) became the main prudential supervisor of euro area credit institutions (some 6,000 banks). It ensures that they comply with EU banking rules and identify problems at an early stage so that they take timely action. The ECB directly supervises the largest credit institutions and national supervisors continue to oversee the smaller ones.

Membership of the Banking Union is obligatory for all euro area countries and open to all other EU countries.