The Banking Union is a single EU-wide banking supervision and resolution system that operates on the basis of uniform rules applied by all Member States whose national currency is the euro and those non-euro area Member States that decide to join. Learning from the financial crisis that hit the world markets in 2008 and 2009, which in some European countries lasted until 2015, Member States decided to further strengthen the Economic and Monetary Union by creating an integrated financial framework that would include a single supervision, resolution and deposit insurance for all credit institutions operating in the EU. The project is designed to achieve the following objectives:
- ensure the resilience of banks and make them able to cope with any future financial crisis
- prevent situations where taxpayers’ money is used to rescue failing banks
- reduce market fragmentation by harmonising rules for the financial sector; and
- improve financial stability in the euro area and the EU as a whole.
The Banking Union currently consists of:
- uniform rules
- the Single Supervisory Mechanism; and
- the Single Resolution Mechanism.
The completion of the Banking Union project also requires the establishment of a single European deposit insurance scheme (EDIS), which is currently under negotiation between Member States. An illustrative illustration of the Banking Union at the end of the Banking Union is given in the following figure:
