Safe banks in Europe

The banking union sets out harmonised rules for banks in the euro area and across Europe. These common rules regulate how banks operate, how they are supervised and how they can exit the market in an orderly manner if necessary. This helps to make the financial system more stable. Based on this uniform set of rules, risks can be identified more effectively and financial crises can be prevented.

Video: Sicher Banken in Europa

Stability through shared responsibility

What is the banking union?

The banking union is an initiative designed to stabilise and strengthen the banking system in Europe through uniform rules. The banking union is based on three pillars:

  • the Single Supervisory Mechanism (SSM)
  • the Single Resolution Mechanism (SRM)
  • the European deposit insurance scheme (EDIS)

SSM: European banks under single supervision

The Single Supervisory Mechanism (SSM) governs banking supervision in Europe. This means it assesses whether banks comply with the uniform rules and standards. The SSM comprises the ECB and the national supervisory authorities of the countries participating in the SSM. The ECB supervises larger banks (SIs) directly. Smaller banks (LSIs) are supervised by the national supervisory authorities. In Austria, these are the OeNB and the Financial Market Authority (FMA).

Good to know:

  • SIs stands for “significant institutions”
  • LSIs stands for “less significant institutions”

SRM: orderly bank resolution in Europe

The Single Resolution Mechanism (SRM) governs the resolution of banks supervised by the SSM and of a number of other cross-border groups. The SRM ensures that banks facing insolvency (i.e. banks that are unable to meet their financial obligations) exit the financial market in an orderly manner. This is intended to prevent any adverse effects on financial stability, the economy and public finances. One of the aims of the SRM is to ensure that taxpayers’ money does not have to be used to bail out banks.

EDIS: uniform insurance for bank deposits

The European deposit insurance scheme (EDIS) is a proposal that was put forward by the European Commission in 2015. Its aim would be to provide uniform insurance for all deposits held with banks in the euro area. In 2027, the European Commission intends to present a new proposal for simplifying the framework for deposit insurance. Until then, the national deposit guarantee scheme continues to apply in Austria.

Benefits of the banking union

  • The banking union helps maintain a stable banking and financial system by establishing common rules and procedures for banks. It makes it possible to identify risks early and take timely measures to mitigate them.
  • The banking union ensures the consistent supervision of banks based on strict rules and uniform standards under the SSM. The ECB supervises the largest banks directly.
  • Under the SRM, the banking union enables the orderly resolution of banks in distress. This reduces the risk of contagion in financial markets.
  • The banking union protects taxpayers by ensuring that, in the event of a crisis, banks will not need to be bailed out by governments. Clear rules and dedicated funds enable the orderly resolution of insolvent banks.
  • The banking union sets out a single set of rules that apply across the EU (Single Rulebook). This ensures greater transparency and efficiency and makes it easier to compare banks across the EU.
  • The banking union boosts confidence in the financial system. The SSM and SRM make the European banking sector more credible and secure for investors and businesses.

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Frequently asked questions about the banking union

The banking union relies on rules, procedures and instruments designed to achieve the following objectives:

  • to make banks safer and more resilient to financial crises
  • to supervise banks effectively
  • to resolve failing banks in such a way that no taxpayers’ money is required and any damage to the economy is kept to a minimum
  • to harmonise regulations and supervisory practice and thereby integrate financial markets better 

The banking union was established to ensure that banks are supervised under a common framework and to make the banking system stronger and more transparent. The aim is to ensure that banks remain stable in a crisis and that no taxpayers’ money is needed to bail out banks in distress.

By establishing the banking union, the EU made an important step towards genuine Economic and Monetary Union (EMU). Establishing the banking union was one of the lessons learned from the 2008 financial crisis.

The banking union offers a number of major benefits.

  • The banking union helps maintain a stable banking and financial system by establishing common rules and procedures for banks. It makes it possible to identify risks early and take timely measures to mitigate them.
  • The banking union ensures the consistent supervision of banks based on strict rules and uniform standards under the SSM. The ECB supervises the largest banks directly.
  • Under the SRM, the banking union enables the orderly resolution of banks in distress. This reduces the risk of contagion in financial markets.
  • The banking union protects taxpayers by ensuring that, in the event of a crisis, banks will not need to be bailed out by governments. Clear rules and dedicated funds enable the orderly resolution of insolvent banks.
  • The banking union sets out a single set of rules that apply across the EU (Single Rulebook). This ensures greater transparency and efficiency and makes it easier to compare banks across the EU.
  • The banking union boosts confidence in the financial system. The SSM and SRM make the European banking sector more credible and secure for investors and businesses.

All euro area countries automatically participate in the banking union. This means that the banking union currently comprises 21 EU countries.

Non-euro area EU countries can also participate in the banking union through close cooperation with the ECB. This means that they can participate in the SSM and SRM even if their currency is not the euro.

A key pillar of the banking union is a set of common European rules and standards for banks: the Single Rulebook. The European Banking Authority (EBA) is primarily responsible for this set of rules. Among other things, the EBA develops technical standards and guidelines for banks. It also carries out stress tests to assess how resilient the European banking sector would be in the event of a crisis.

The savings and investments union (SIU) is an EU initiative designed to make it easier to invest savings in European enterprises. This is intended to bring benefits for both people and businesses – people can take advantage of new savings opportunities, whilst businesses can tap into new sources of capital. Furthermore, the SIU is aimed at making the EU economically stronger, more competitive and more independent.

The SIU is intended to cover the entire financial system – the banking sector and capital markets – and to operate at both EU and national level. It is based on progress made on the banking union and the capital markets union. It aims to create an EU-wide single market for capital (i.e. investment) and to make the EU a stronger and more attractive financial centre. To this end, legal, fiscal and administrative barriers between the 27 EU countries must be removed.

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