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The European Banking Union
Prof. Anna Jurkowska-Zeidler
Chair of Financial Law
Faculty of Law and Administration
University of Gdansk
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)
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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.
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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
Single Resolution Mechanism
• The BRR Directive relies on a network of national
resolution 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 Deposit Guarantee Scheme
• 24 November 2015: the Commission has proposed a
euro-area wide insurance scheme for bank deposits
• The European Deposit Insurance Scheme (EDIS) will
strengthen the Banking Union, buttress bank
depositor protection, reinforce financial stability and
further reduce the link between banks and their
sovereigns.
• The European Deposit Insurance Scheme will be built
on the existing system, composed of national deposit
guarantee schemes set up in line with European rules;
individual depositors will continue to enjoy the same
level of protection (€100 000)
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The European Deposit Insurance Scheme
• The scheme would develop over time and in three
stages. It would consist of a re-insurance of national
Deposit Guarantee Schemes (DGS), moving after
three years to a co-insurance scheme, in which the
contribution of EDIS will progressively increase over
time (the key difference in this phase is that a
national scheme would not be required to exhaust its
own funds before accessing EDIS funds).
• As a final stage, a full European Deposit Insurance
Scheme is envisaged in 2024.
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