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European banking union

The financial crisis demonstrated the need to halt fragmentation in European financial markets and put an end to the adverse feedback loop between banking sector weaknesses and the deterioration in public accounts. Reforms were therefore implemented to strengthen the supervision of banking institutions and resolve their difficulties without calling on the taxpayer. With this in mind, euro area Member States decided in 2012 to create the European Banking Union, based on three pillars.

The first pillar took concrete shape with the adoption in 2013 of European regulations to set up the Single Supervisory Mechanism (SSM): with effect from November 2014, major euro area banking groups (around 130 institutions) will be supervised directly by the ECB; other institutions will continue to be supervised by their national supervisory authorities under the auspices of the ECB. EU countries that are not in the euro area may also be members of the Banking Union.

The second pillar concerns the implementation of a Single Resolution Mechanism (SRM) for banks, with the aim of harmonising the rules applicable to distressed banks. The European regulation implementing the SRM was adopted in 2014 and sets out the rules for dealing with bank failures while minimising the involvement of taxpayers. The SRM will be fully operational in early 2016: it will include in particular a Single Resolution Fund (SRF) that will be funded gradually as of 2015 by commercial banks to reach some EUR 55 billion after eight years.

The third pillar supplements the decision taken in 2010 to harmonise deposit protection guarantees throughout Europe, in the event of a bank failure, at EUR 100,000 per depositor and per institution. Deadlines for reimbursing depositors will be gradually reduced from 20 days to 7 days by 2024.

For more information, see this folder on the banking union (Source: La finance pour tous).

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