European banking union

This note brings together the main documents and developments regarding the European Community’s attempts to create a more pan-Community supervisory and recovery mechanism for members’ banking sectors. Significant new measures were approved of in December 2013.

The measures will not apply to the UK because it is outside of the euro area.

The proposals are collectively called the European Banking Union which is comprised of two main ‘pillars’:

• The Single Supervisory Mechanism
• The Single Supervisory Mechanism is a new system of banking supervision for Europe. It comprises the ECB and the national supervisory authorities of the participating countries. It is based upon a single Rulebook which 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 Single Resolution MechanismA Single Resolution Fund, financed by contributions from banks, will be available to pay for resolution measures.With respect to the current crisis in Greece, the ECB has as its focus the position of Greek banks. Questions about the broader public finance problems of the Greek government and Greek people, are outside of its authority, but well within the sphere of impact of the decisions it must take.
• The institution at the heart of the system is the European Central Bank which works with national regulators and other pan-European banking groups such as the European Banking Authority which does include the UK within its remit.
• The main purpose of the Single Resolution Mechanism is to ensure the efficient resolution of failing banks with minimal costs for taxpayers and to the real economy. A Single Resolution Board will ensure swift decision-making procedures, allowing a bank to be resolved over a weekend. As a supervisor, the ECB will have an important role in deciding whether a bank is failing or likely to fail.