Communication: Towards the completion of the Banking Union

Author (Corporate)
Series Details COM (2015) 587
Publication Date 24/11/2015
Content Type

The Five Presidents’ Report of 22 June 2015 and the follow-up Commission Communication of 21 October 2015 have set out a plan for deepening Economic and Monetary Union (EMU). Completing the Banking Union is an indispensable element of that plan. EMU needs a fully-functioning Banking Union to ensure effective transmission of the single monetary policy, better risk diversification across Member States and adequate financing of the economy. In addition, the completion of the Banking Union will reinforce financial stability in EMU by restoring confidence in the banking sector through a combination of measures designed to both share and reduce risks.

A key objective of the Banking Union is to reverse the fragmentation of financial markets since the euro crisis, by weakening the link between banks and their national sovereigns (whereby bank failures can imperil public finances, and sovereign stress can destabilise banks). In order to meet this objective, it was decided that the supervision, resolution and resolution funding of significant banks should be conducted at the Banking Union level.

To this end, the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM) – the first two pillars of the Banking Union – have been established. The SSM became operational in November 2014 and is already delivering independent and uniform prudential supervision. The SRM will be fully operational from January 2016, when contributions to the Single Resolution Fund (SRF) will also begin.

However, three years after the European Council agreed on a roadmap for the completion of EMU based on deeper integration and mutual support, the third pillar of the Banking Union – a common deposit insurance scheme – is still missing. In addition, it has been agreed that the Banking Union should have an effective common fiscal backstop to be available as a last resort but work on this matter has not yet started.

Action is now needed to ensure full and correct implementation of those elements of the Banking Union that are already in place and to put in place the other missing elements. Member States have agreed to provide the SRF with effective bridge financing arrangements by January 2016 and to establish the common fiscal backstop at the latest by the end of 2023.

In accompanying the Commission’s legislative proposal to establish a European Deposit Insurance Scheme, this Communication places the proposal in the broader context of completing the Banking Union and the necessary additional measures of risk sharing and risk reduction in the banking sector.

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ESO: Background information: A stronger Banking Union: New measures to reinforce deposit protection and further reduce banking risks

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