What is the banking union?

What is the banking union? The banking union
is a fundamental change to the way banks are supervised in Europe. It ensures that the
banking sector is safe and reliable. And that if problems occur banks can be resolved
without using taxpayers money. That is what happened in the recent past,
right? But how does it work? The banking union is made up of 2 parts: the
Single Supervisory Mechanism and the Single Resolution Mechanism.
They are mandatory for all euro-area countries, and open to all other countries in the EU.
These two mechanisms are based on the same rules which apply to all banks in the European
Union, not only those in the Banking Union. What rules?
The rules and principles adopted by the EU after the financial crisis to make the financial
sector safer. For instance, it includes rules to make sure
that all EU banks hold enough capital, and act in a more responsible and sustainable
way. Savers are also much better protected, and
deposits up to 100 000 EUR are guaranteed. These rules mean that there is the same level
of protection across the EU and are designed to prevent panic withdrawals if a bank is
in distress. And what about the 2 mechanisms that you mentioned?
When the financial crisis turned into the Eurozone debt crisis, it became clear that
banks in countries that share the euro are more interdependent and that they need, on
top of the same rules, also the same supervision and resolution.
So, the EU leaders and the Parliament decided that the European Central Bank should be in
charge of banking supervision at the European level, this is the Single Supervisory Mechanism.
And if a bank failed and needed to be resolved, this would also be done at European level.
A new agency, called the Single Resolution Board will be in charge. This is the Single
Resolution Mechanism. Would you like to learn how these 2 mechanisms
work in practice? Sure!
Then, click here for the next video: The Banking Union in Practice.

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About the Author: Maximilian Kuhn

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