#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:
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.