A rulebook for all financial actors in the EU
In response to the 2008 financial crisis, the European Commission pursued a number of initiatives to create a safer financial sector for the single market. These initiatives form a single rulebook for all financial actors in the 27 EU countries. They include
- stronger prudential requirements for banks
- improved protection for depositors
- rules for managing failing banks
This single rulebook is the foundation for the banking union.
Deeper integration of the euro area banking system
As the financial crisis evolved into the euro area debt crisis it became clear that deeper integration of the banking system was needed for the euro area countries, which are particularly interdependent. That’s why, on the basis of the European Commission roadmap for the creation of the banking union, the EU institutions agreed to establish a Single supervisory mechanism and a Single resolution mechanism for banks. The banking union applies to countries in the euro area. Non-euro area countries can also join.
As a further step to a fully-fledged banking union the Commission put forward a proposal for a European deposit insurance scheme in November 2015. This would provide stronger and more uniform insurance cover for all retail depositors in the banking union.
Completing the banking union
The first two pillars of the banking union – the SSM and the SRM – are now in place and fully operational. However, a common system for deposit protection has not yet been established and further measures are needed to tackle the remaining risks of the banking sector (in particular, those related to Non-performing loans (NPLs), or the initiatives to help banks diversify their investment in Sovereign bond-backed securities (SBBS)). In October 2017 the European Commission published a Communication from the Commission: Completing the banking union urging the European Parliament and the Council to progress quickly in the adoption of these measures and to complete all parts of the banking union's architecture.