The Banking Union
One of the advantages of being in the European single market is joining a single banking union. This means there will be a Single Resolution Mechanism and a Single Supervisory Mechanism. You will learn more about the European Banking Union and its elements here. How do you think the single banking union could help prevent a spillover effect of a crisis in member states?
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.
Source: European Central Bank,
https://www.bankingsupervision.europa.eu/about/bankingunion/html/index.en.html