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Banking Union

Context

In response to the EU sovereign debt crisis (2011-2012), the European Union created the Banking Union to safeguard financial stability, deliver a safer banking sector and protect the taxpayer from the cost of bank failures. The banking union, currently covering 19 eurozone countries, is also open to other EU Member States.

Europe ‘s competitiveness and growth needs competitive banks. A genuine banking union would foster a more effective allocation of resources across the Eurozone (e.g., companies would be able to tap wider and cheaper sources of funding) and help to achieve a better diversification of risks. A fully integrated banking union would enable the emergence of transnational and competitive banking groups in the EU which would help Eurozone ‘s excess savings to circulate across borders to parts of Europe where most attractive investment opportunities exist, and to increase private risk sharing in the Union.

The conception of the Banking Union relied on three pillars: the first one is supervision, the second one is resolution, and the third one – which is still a matter of discussion among Member States – is the management of Deposit Guarantee Schemes (DGSs).

The first pillar of the banking union is the Single Supervisory Mechanism (SSM) created in 2014, a new system of banking supervision comprising the ECB and the national authorities, directly supervising the 115 most significant banks of the euro area (holding almost 82% of European assets).

The Covid-19 crisis and the banking turmoil of Spring 2023 have proved the Banking Union to promote a more resilient European banking sector. But ten years after its creation, the Banking Union has not been completed, and two of its main objectives – namely, to break the sovereign-bank loop and to create a genuinely integrated single market for banks – have not been achieved.

Despite the creation of European supervision and regulation authorities, the banking sector in Europe remains too fragmented – due to a sub-optimal capital and liquidity allocation between the parents and subsidiaries of pan-European banking groups, low profitability levels, different legal systems and so on. Many European countries’ banking systems remain overcrowded, and market concentration has only progressed at domestic level. The “national bias” continues to fragment the banking market along national lines: there are no host supervisors anymore, but the distinction between home and host authorities still exists for banks operating across borders under the remit of the SSM, hence the persistence of ring-fencing practices.

This is an element of risk because if a shock is hitting a part of the banking union, the banking sector does not work as a shock absorber by absorbing losses in one country, for instance, through profits in another country. Moreover, banks cannot create truly pan- Eurozone business because they must deal with a patchwork of national authorities ‘different rules on conduct.

These issues still need to be addressed by EU regulators and supervisors in order to catch up with the US banking sector and to foster a more profitable and unified European Banking Union.

The Banking Union also relies on an efficient Crisis Management Framework and resolution framework (second and third pillars). Find more about these topics here.

Eurofi documents

Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)

Eurofi Views Magazine chapters

Banking Union & ring fencing issues

Improving the EU bank crisis management framework - September 2023 new

Dominique Laboureix - Single Resolution Board (SRB) | Edouard Fernandez-Bollo - European Central Bank (ECB) | Stefano Cappiello - Ministry of Economy and Finance, Italy | Jacek Jastrzębski - Polish Financial Supervision Authority | Daniel Quinten - The National Association of German Cooperative Banks (BVR) | Axel Marmottant - Crédit Agricole | Christian Castro Torres - CaixaBank

Future of the Banking Union - September 2023 new

Harald Waiglein - Federal Ministry of Finance, Austria | Dominique Laboureix - Single Resolution Board (SRB) | Jukka Vesala - Nordea Bank | Stanislas Roger - SMBC Bank EU AG | Piercarlo Padoan - UniCredit Group SpA

Managing risks in the banking sector - September 2023 new

Nathalie Aufauvre - Autorité de Contrôle Prudentiel et de Résolution (ACPR) | Margarita Delgado - Banco de España | Elizabeth McCaul - European Central Bank (ECB) | Jose Manuel Campa - European Banking Authority (EBA) | Nathanaël Benjamin - Bank of England | Fernando Vicario - Bank of America Europe DAC | Kristine Braden - Citibank Europe Plc | Olivier Vigneron - Deutsche Bank AG | Hannes Frotzbacher - Erste Bank Croatia

The integration of the EU banking sector and the challenges of global competition - September 2023 new

Andrea Enria - European Central Bank

Competitiveness of the EU banking sector - April 2023

Giuseppe Sani - Banca d’Italia | José Manuel Campa - European Banking Authority (EBA) | Axel A. Weber - Center for Financial Studies (CFS) | Sébastien Raspiller - Ministry of the Economy, Finance and Industrial and Digital Sovereignty, France | Fernando Vicario - Bank of America Europe DAC | Bárbara Navarro - Public Policy & Institutional Relations - Santander | Christiana Riley - Deutsche Bank USA Corp.

Banking Union after the Eurogroup June decisions - September 2022

José Manuel Campa - European Banking Authority | Margarita Delgado - Banco de España | Steven Costers - Federal Public Service Finance - Treasury | Harald Waiglein - Ministry of Finance, Austria | Christian Castro - CaixaBank | Francesco Ceccato - Barclays Europe | Christian Edelmann - Oliver Wyman | Pier Carlo Padoan - UniCredit S.p.A

Completing the Banking Union will be key to drive economic growth and fund the twin transitions - February 2022

P. Donohoe - President of the Eurogroup and Minister of Finance of Ireland

Ringfencing practices in the Banking Union - February 2022

Harald Waiglein - Federal Ministry of Finance, Austria | Fernando Vicario - Bank of America Europe | Gediminas Šimkus - Bank of Lithuania | Elizabeth McCaul - European Central Bank | Peter Palus - Permanent Representation of the Slovak Republic to EU | Karl-Peter Schackmann-Fallis - Deutscher Sparkassen- und Giroverband | Gilles Briatta - Société Générale

Bank fragmentation and consolidation - September 2021

José Manuel Campa - European Banking Authority | Edouard Fernandez-Bollo - European Central Bank | Fernando Vicario - Bank of America Europe | Pier Carlo Padoan - UniCredit S.p.A. | Luigi Federico Signorini - Banca d’Italia | Christian Edelmann - Oliver Wyman

Does the Covid crisis reinforce the case for Banking Union? - September 2020

Edouard Fernandez-Bollo - European Central Bank | Dr. Eva Wimmer - Federal Ministry of Finance, Germany | Luis Garicano - European Parliament | Elke König - Single Resolution Board | Martin Merlin - European Commission | Dr. Karl-Peter Schackmann-Fallis - Deutscher Sparkassen- und Giroverband | Santiago Fernández de Lis - Banco Bilbao Vizcaya Argentaria | Diederik van Wassenaer - ING Groep

Costs and risks of not achieving the Banking Union - April 2020

Irene Tinagli - European Parliament | Markus Ferber - European Parliament | Robert Holzmann - Oesterreichische Nationalbank | Carlos da Silva Costa - Banco de Portugal | Vitas Vasiliauskas - Bank of Lithuania

Banking Union home-host dilemma - April 2020

Edouard Fernandez-Bollo - European Central Bank | Martina Drvar - Croatian National Bank | Maria Stolpe - Nordea

Resolution framework & EDIS

EU bank crisis management framework - February 2022

Edouard Fernandez-Bollo - European Central Bank | Elke König - Single Resolution Board | Helmut Ettl - Austrian Financial Market Authority | John Berrigan - European Commission | Jérôme Grivet - Crédit Agricole S.A. | Francesco Ceccato - Barclays Europe | Santiago Fernández de Lis - Banco Bilbao Vizcaya Argentaria | Johannes Rehulka - Raiffeisenbank International

EU bank crisis management framework - September 2021

Elke König - Single Resolution Board | Helmut Ettl - Austrian Financial Market Authority | Edouard Fernandez- Bollo - European Central Bank | Juan Poswick - BNP Paribas | Johannes Rehulka - Raiffeisen Bank International AG | Karl-Peter Schackmann-Fallis - Deutscher Sparkassen- und Giroverband

EU Bank crisis management framework - April 2021

Elke König - Single Resolution Board | Maria Velentza - European Commission | Helmut Ettl - Austrian Financial Market Authority | Martin Merlin - European Commission | Karl-Peter Schackmann-Fallis - Deutscher Sparkassen- und Giroverband | Jacques Beyssade - Groupe BPCE | Diederik van Wassenaer - ING Group

EDIS: is a political agreement nearer? - April 2020

Pablo Hernández de Cos - Banco de España | Jonás Fernández - European Parliament | Georg Huber - Deutscher Sparkassen- und Giroverband