The banking union in practiceOn January 22, 2020 by Raul Dinwiddie
How does the banking union work in practice?
In order to avoid a financial crisis like in the recent past, the banking union moves
banking supervision to the European level. That’s the Single Supervisory Mechanism.
As of November 2014, the European Central Bank is in charge of supervising all banks
in the euro area, and in other countries that join the system.
The European Central Bank directly supervises the most important banks, while national supervisors
continue to supervise the remaining banks, under the supervision of the Central Bank
guidance. Their main task is to ensure that banks comply with the new rules and that emerging
problems are tackled early on. Ok, but what happens if a bank gets into trouble?
Will taxpayers have to step in again? The strengthened rules and the new supervisory
system will make our banking system much sounder and safer.
In the rare case when a bank fails or is at risk of failing, the Single Resolution Mechanism
will come into play. All the necessary tools will be in place to
resolve a bank efficiently. Decisions will be taken by a central decision-making Board
who will make sure that the interests of the EU as a whole are taken into account.
And the costs will be borne by the private sector. A common Resolution Fund, funded by
the banking sector, will be established over a period of eight years.
And can a country outside the euro-zone join the banking union?
Yes, the banking union is open to all countries in the European Union.
I see. So can we say that the banking union will put an end to the era of bailouts paid
by taxpayers? Yes, we can. The banking union is one of the
biggest steps in terms of European integration since the introduction of the euro.
The risk of banks getting into trouble is much lower and we are better prepared if crises
do occur. The banking union will help restore financial
stability and confidence in Europe and its banks.
This will create the right conditions for the financial sector to lend to the real economy,
spurring growth and job creation Europe’s number one priority today.