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The European Banking Union
Prof. Anna Jurkowska-Zeidler
Chair of Financial Law
Faculty of Law and Administration
University of Gdansk
Crisis management in the EU
Europe was the only large economic region without
resolution solutions before the last financial crisis
The global financial crisis that began in 2007 revealed
significant gaps in the crisis management framework:
• Supervision and regulation of financial institutions in
isolation in a purely microprudential perspective
insufficient
• Lack of effective tools enabling liquidation of problem
banks in an orderly manner forced many jurisdictions
to use taxpayer money
• The effective level of support provided by the
Member States to the financial sector amounted to
EUR 1225.6 billion as of the end of April 2011
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Banking union: restoring financial stability in the
Eurozone
• As the financial crisis evolved and turned into the
Eurozone debt crisis in 2010/11, it became clear that,
for those countries which shared a currency, more
had to be done, in particular to break the vicious
circle between banks and public finances (national
taxpayers money)
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Banking union: restoring financial stability in
the Eurozone
• Increasing debt levels of
sovereigns that provided
financial support to
struggling banks
• Losses for banks from
exposures to sovereigns
under stress
• Break the correlation
between the cost of funding
of euro area banks and that
of their respective
sovereigns
• Need for a common
resolution mechanism
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Banking union: restoring financial stability
in the Eurozone
Two main advantages and goals of establishing the
Bankig Union
• Try to resolve the so-called “financial trilemma”
• Impossibility of achieving financial stability, financial
integration and maintaining national financial policies
in a globalised financial market
• Help to break the negative feedback loops between
sovereign debts and banks
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Banking union: restoring financial stability
in the Eurozone
• Together with the new EU wide regulatory and
supervisory framework for the financial market, the
European Banking Union is a big step in the economic
and monetary integration of the EU. It will put an end
to the era of massive bailouts paid for by taxpayers
and will help restore financial stability.
• 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.
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Banking Union: the three pillars
Banking Union
Single
Resolution
and Deposit
Guarantee
European
Resolution Fund
and European
Deposit
guarantee
scheme
Single
Supervision
ECB / National
competent
authorities
Euro area credit
institutions
Single
Rulebook
Capital
Requirements
European
Stability
Mechanism
(ESM)
Direct
recapitalisation
Fiscal backstop
Art.127.6 TFEU
Establishment of
the Single
Supervisory
Mechanism (SSM)
Legal framework of the European Banking
Union; Single Regulation
• The new regulatory framework with common rules
for banks in all 28 Member States, set out in a single
rulebook, is the foundation of the banking union.
Common rules will help to prevent bank crises in the
first place.
• All European Banks have to comply with it across the
Single Market. This is crucial to ensure that there is
strong regulation everywhere, without loopholes, so it
guarantees a level playing field for banks and a real
Single Market for financial services.
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Single rulebook
• This set of rules provides legal and administrative
standards to regulate, supervise and govern the
financial sector in all EU countries more efficiently.
• It includes rules on capital requirements, recovery and
resolution processes and a system of harmonised
national Deposit Guarantee Schemes.
• The package on capital requirements for banks, the so
called "CRD IV package” (consisting of the Capital
Requirements Directive 2013/36/EU and the Capital
Requirements Regulation (EU) No 575/2013 (CRR)
transposes via a Regulation and a Directive the new
global standards on bank capital (commonly known as
the Basel III agreement) into the EU legal framework.
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Single Supervisory Mechanism; SSM
• The Single Supervisory Mechanism is based on the
Council Regulation (EU) No 1024/2013 conferring specific
tasks on the European Central Bank concerning policies
relating to the prudential supervision of credit institutions
• It comprises the ECB and the national supervisory
authorities of the participating countries.
• All euro area countries participate automatically in the
SSM.
Its main aims are to:
• ensure the safety and soundness of the European banking
system
• increase financial integration and stability
• ensure consistent supervision
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Legal framework of the European Banking
Union; Single Supervision
• Since 4 November 2014, the European Central Bank
(ECB) has become the supervisor of all 6000 banks in
the euro area in the framework of the Single
Supervisory Mechanism.
• The ECB directly supervises of up to 130 significant
groups, which represent almost 85% of all banking
assets in the euro area.
• Ongoing supervision of the significant banks is carried
out by Joint Supervisory Teams (JSTs). Each
significant bank has a dedicated JST, comprising staff
of the ECB and the national supervisors.
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Main features of the SSM
The ECB will take all decisions regarding the banks,
banking groups and respective components
categorised as “significant” (around 150 banks in the
euro area countries)
• Banks with more than €30 billion in total assets
• Banks representing more than 20% of domestic
GDP (unless <€5 billion in assets)
• 3 most significant banks in each country (unless
justified by particular circumstances)
• Banks receiving direct assistance from the
European Stability Mechanism
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Main features of the SSM
• The national supervisors will take the decisions
regarding “non-significant” banks subject to
regulations, guidelines or general instructions
• Close cooperation with non-euro area Member States
• The ECB can conduct supervision in a non-euro
area EU Member State, following a request for
close cooperation.
• At any time the ECB can decide to directly
supervise any one of these banks to ensure that
high supervisory standards are applied
consistently.
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ECB’s guiding principles for establishing
the SSM
• Comprehensiveness and strong institutional framework
• Independence
• Clear separation of monetary policy and supervisory
responsibilities
• Decentralisation
• Consistency with the single market
• Accountability (an Interinstitutional Agreement between
the European Parliament and the ECB; a Memorandum
of Understanding between the EU Council and the ECB)
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Legal framework of the European Banking
Union; Single Resolution
• Directive 2014/59/EU Bank
Recovery and Resolution
Directive; BRRD (deadline for
transposition in the Member
States 31.12.2014)
• Regulation (EU) No 806/2014
establishing a Single
Resolution Mechanism (SRM)
for the Banking Union
• network of national resolution
authorities, a Single
Resolution Mechanism with a
strong central decisionmaking
body and a Single
Bank Resolution Fund
• Directive 2014/49/EU
on deposit guarantee
schemes
• Deposit Guarantee
Schemes Directive;
DGSD
• Deadline for
transposition in the
Member States
3.7.2015 and
31.5.2016
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Single Resolution Mechanism
• The BRR Directive relies on a network of national
authorities and resolution funds to resolve banks. While
this network is a major step forward to minimising
different national approaches and fragmentation of the
Single Market, it is not sufficient for Member States who
share the common currency or are supervised by a single
supervisor, the ECB in the Banking Union.
• The Single Resolution Mechanism (SRM) provides for an
integrated decision-making structure aligning resolution
under the SRM with supervision under the SSM and
creates centralised system to deal with banks in distress.
• in the Banking Union, bank supervision and resolution
needed to be exercised by the same level of authority.
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Single Resolution Mechanism
• The Single Resolution
Board is the central
decision-making body of
the SRM.
• The SRB is the European
resolution authority for the
Banking Union. It works in
close cooperation with the
national resolution
authorities of participating
Member States.
• The Single Resolution
Board is a independent
agency of the EU.
• The Single Resolution
Fund, financed by
contributions from banks,
will be available to pay for
resolution measures.
• The Fund has a target
level of €55 billion and can
borrow from the markets
if decided by the Board. It
will reach the target level
over 8 years.
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Single Resolution Mechanism
• the Single Resolution Board is operational as an
independent EU Agency as of 1st January 2015. It
starts work on developing resolution plans for credit
institutions from January 2015 and will be fully
operational, with a complete set of resolution powers,
from January 2016.
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Single Resolution; crisis management
• The Single Resolution Mechanism is directly
responsible for the resolution of all banks in Member
States participating in the European Banking Union.
• The Single Resolution Mechanism ensures that if a
bank subject to the Single Supervisory Mechanism
should face serious difficulties, despite stronger
supervision conducted by the European Central Bank,
its resolution could be managed efficiently with
minimal costs to taxpayers and the real economy.
• It ensures that the complicated decisions which have
to be taken when a resolution happens, in particular a
cross-border resolution, can be done quickly with
binding effect for all Member States in the banking
union.
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Deposit Guarantee Schemes Directive
• The minimum harmonisation approach introduced in
original Directive on Deposit Guarantee Schemes
(DGS) – adopted in 1994 has resulted in significant
differences between DGS as to the level of coverage,
the scope of covered depositors and products and the
payout delay.
• The new law – Directive 2014/49/EU confirms the
fundamental principle underpinning DGSs: they have
to be financed by banks and not by taxpayers.
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Single Deposit Guarantee Scheme
• It is not envisaged to equip the banking union with a
single supranational Deposit Guarantee Scheme at
this stage. The priority is to reach an agreement on a
common network of national deposit guarantee
schemes. The proposal on DGS once agreed will
ensure that every Member State has a deposit
guarantee fund which is properly funded, ex ante.
• The pan-European DGScould be a potential option in
the future once the current banking reforms (e.g.
BRRD Bank Resolution and Recovery Directive) have
been implemented and the other elements of the
banking union such as the Single Supervisory
Mechanism (SSM) and the Single Resolution
Mechanism (SRM) are in place.
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Common Deposit Guarantee Scheme
• Depositors will continue to benefit from a guaranteed
coverage of €100,000 in case of bankruptcy backed by
funds to be collected in advance from the banking
sector.
• For the first time since the introduction of DGS in
1994, there are financing requirements for DGS in the
Directive. In principle, the target level for ex ante
funds of DGS is 0.8% of covered deposits (i.e. about €
55 billion) to be collected from banks over a 10-year
period.
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Common Deposit Guarantee Scheme
• Covered deposits are explicitly excluded from the
bail-in regime. This means that covered depositors
will never suffer any losses and their deposits will
always be protected up to the coverage level of € 100
000.
• Access to the guaranteed amount will be easier and
faster. Repayment deadlines will be gradually reduced
from the current 20 working days to 7 working days
in 2024.
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