Banking union

Banking union was created to ensure that banks are stronger and better supervised, and, should problems arise in the financial sector, to resolve, i.e. restructure the banks more efficiently. It is an important step towards the EU’s economic and monetary union.

Banking union consists of:

• a Single Supervisory Mechanism (SSM), which supervises the largest and most important banks in the euro area directly at EU level;
• a Single Resolution Mechanism (SRM), whose purpose it is to resolve failing banks in the EU Member States participating in the SSM, in an orderly manner and at minimal cost to taxpayers and to the economy.

The aim is to ensure that any resolution is financed first by a bank’s shareholders and, if necessary, also partly by its creditors. However, there is an additional funding source available — the Single Resolution Fund (SRF) — which can step in if stakeholders’ and creditors’ contributions are insufficient.

In November 2020, the Eurogroup also agreed that the European Stability Mechanism (ESM) will provide the common backstop to the SRF, if the SRF does not have sufficient funds.

SEE ALSO

• Economic and monetary union (EMU)
• European Stability Mechanism (ESM)
• Eurogroup
• Member States
• Single Resolution Mechanism (SRM)
• Single Supervisory Mechanism (SSM)
• Failing banks and investment firms: rules and procedures (summary)
• Single Supervisory Mechanism Framework regulation (summary)
• Banking union (European Commission)
• Banking union (European Central Bank)
• What is the common backstop? (European Stability Mechanism).