Banking

The banking union is the EU’s architecture of rules and institutions designed to regulate, supervise and recover the banking sector.

These rules aim to ensure stability, enhance resilience to economic shocks, facilitate smooth market exits, and harmonise financial regulations.

Why was the banking union created?

The banking union was established in response to the financial and sovereign debt crises that hit Europe from 2008 onwards.

These crises exposed vulnerabilities in the EU banking sector, highlighting in particular the interconnectedness of euro area financial systems.

In 2014, the EU created the banking union to enhance the regulation, supervision and resolution of banks by building on pre-existing banking regulatory legislation.

The benefits of the banking union

More robust banks owing to stronger regulation and supervision.

Avoids resource to taxpayers' money to rescue failing banks.

Reduces market fragmentation across the euro area.

Prevents the risk of spillovers between banks.

Protecting banks from failing

The EU safeguards the European banking system through a robust supervisory mechanism.

At the heart of this framework is the EU’s supernational body, known as the single supervisory mechanism, which oversees all banks in the participating countries of the banking union.

The aim of this supervision is to ensure that banks are fit to operate, remain well-capitalised, and are resilient to economic shocks. This protects taxpayers' money and prevents bank failures.

How the EU supervises the banking sector

Preventing banks from failing

The EU manages the failures of credit institutions established in the banking union through the single resolution mechanism.

The mechanism is a centralised system that resolves non-viable banks and banking groups in an orderly manner to safeguard overall financial stability and serve public interest by ensuring that shareholders and creditors are liable for their banks’ losses and thus avoid recourse to taxpayers’ money.

It functions through the single resolution board and the single resolution fund.