26 June 2012

European Commission: A banking union for Europe

The economic and financial crisis has demonstrated that the EU’s banking system is vulnerable to shocks. A problem at one bank can spread quickly to others, affecting depositors, investment and the overall economy.

In response, the EU and its member countries have been strengthening financial sector supervision. As part of the reforms, three European supervisory bodies were set up last year to help coordinate the work of national regulators and ensure EU-level rules are applied consistently.

But more can be done to ensure financial stability. Commission president José Manuel Barroso is calling for a banking union to restore confidence in banks and the euro – and as part of a longer-term vision for economic and fiscal integration. The main elements would be:

• EU-wide bank rules – including common but flexible requirements on the amount of capital banks are required to hold;
• a single EU banking supervisor with direct oversight of banks operating in multiple countries and of very large banks – to enforce rules and oversee risk controls;
• common rules for preventing bank failures and for intervening when a bank gets in financial trouble – before taxpayer-funded bailouts are needed;
• a single deposit guarantee scheme to protect depositors wherever they hold savings and investments in the EU – reinforcing confidence in the banking system.

© European Commission