The Banking Union: Under way and here to stay

The Banking Union is under way. The project, which has been referred to as the EU’s most ambitious initiative since the euro was introduced, enters into operation this year. Its prime purpose is to remedy the problems detected in the European banking system during the financial crisis (e.g. market fragmentation, distortion of lending circuits, impaired monetary policy transmission, uncoordinated responses at the national level, etc.), and in particular to break the link between sovereign risk and banking risk, which has proved to have the potential to generate a vicious cycle. The aim is to suppress or limit the drain on the public purse caused by crisis episodes in the banking sector, which have cost huge amounts of taxpayers’ money in recent years.

Will the Banking Union succeed in solving all these problems? In its current state, its design is complex and incomplete, with some gaps still showing through. A look at the bigger picture, however, reveals that the Banking Union represents a definite contribution to stability and consistency in the financial system, particularly in the medium-to-long term and therefore marks a major advancement in the process of European integration.

The project is based on the following four pillars:

  1. The Single Supervisory Mechanism (SSM).
  2. The Single Resolution Mechanism (SRM).
  3. The Safety Net.
  4. The Single Rulebook.