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22 December 2022

Banking union

The banking union is creating a common market for banking services. The banking union protects taxpayers by means of a single European banking supervision system and – in the event of a crisis – a single bank resolution mechanism.

#EuroABC – Banking union

The banking union was established in response to the global financial crisis. Its main components are the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM), and a single rulebook for statutory deposit guarantees. The SSM directly supervises the largest and most important banks in the euro area. The role of the SRM is to ensure the orderly resolution of failing banks, with minimal costs to taxpayers and the real economy.

Effective controls for banks

Banks must provide their customers with a safe place for their money, and they must serve the real economy – even in periods of economic turmoil. During the global financial crisis about a decade ago, taxpayer money had to be used to rescue a number of banks in order to maintain the stability of the financial system. To prevent a repeat of this scenario, the banking union was established in 2014. Since then, banks, supervisors and EU member states have been working together to ensure that banks are better equipped to withstand future crises. Common rules strengthen the competitiveness of banks and reinforce the stability of the banking sector as a whole. The banking union benefits businesses, investors and savers in the EU. It also protects European taxpayers. The banking union is built on three pillars:

The Single Supervisory Mechanism (SSM) places banks that are based in participating countries and that are classified as “significant” under the direct supervision of the European Central Bank (ECB). The SSM comprises the ECB together with the national supervisory authorities of the eurozone countries. Germany’s national supervisor is the Federal Financial Supervisory Authority (BaFin), which helps the ECB supervise significant banks in Germany. EU member states that are not part of the eurozone can participate in the SSM on a voluntary basis.
The Single Resolution Mechanism (SRM) is responsible for the recovery and resolution of credit institutions. The SRM creates a framework for the orderly resolution of banks in financial trouble, including cases that transcend national borders. The aim here is to minimise the impact on the real economy and public finances. The SRM’s remit covers all eurozone countries as well as other EU member states that join it on a voluntary basis. The SRM’s central authority is the Single Resolution Board (SRB).

Bank deposits of up to €100,000 per person per bank are protected in the EU, thanks to harmonised rules on bank deposit protection schemes. The legal basis for these rules is the Deposit Guarantee Schemes Directive. This directive requires all EU member states to set up bank-financed deposit guarantee funds that will guarantee bank deposits for up to €100,000 in case reimbursement becomes necessary. These measures aim to reinforce the confidence and protection of bank customers.

To complete the banking union, decision-makers are discussing the creation of EU-level deposit insurance. A European reinsurance scheme could balance out the varying capacities of the national deposit guarantee schemes. This could help to prevent bank runs from occurring if savers were to lose confidence in the effectiveness of their national system. At the same time, however, risks in national banking sectors must be reduced in order to ensure that a common deposit insurance scheme indeed serves to strengthen the banking union.


  • Roughly 120 banks and banking groups have been classified as significant and are under the direct supervision of the ECB.
  • Bank deposits of up to €100,000 per person per bank are protected by law.
  • 21 EU member states are currently part of the banking union.