In June 2012, on the proposal of the President of the European Council and the Presidents of the Commission, the Eurogroup and the European Central Bank, the EU Heads of State and Government committed themselves to a roadmap towards a genuine Economic and Monetary Union (EMU). The strengthening of the EMU would build on the following pillars:
1. an integrated financial framework (Banking Union),
2. an integrated budgetary framework (towards a Fiscal Union),
3. an integrated economic policy framework (European Semester), and 4. Strengthening democratic legitimacy and accountability (involving national parliaments).
In its Communication of 12 September 2012, the Commission presented a Roadmap towards a Banking Union that would cover all euro area Member States and allow non-euro area Member States to opt-in. It is aimed to restore confidence in banks and in the euro.
The cornerstone of the Banking Union is a Single Supervisory Mechanism (SSM) with direct oversight of banks at European level. Following a set of intensive negotiations, the Parliament adopted in September 2013 the package of legislative acts to set up the SSM.
These legislative acts confer upon the ECB the role of the European single banking supervisor with exclusive powers of prudential supervision over all eurozone banks. National supervisors will keep their competences in certain areas such as consumer protection, and will otherwise assist the ECB in the exercise of its supervision and follow its instructions. Moreover, an Inter-institutional Agreement regulates the accountability of the ECB to Parliament in the framework of its supervisory tasks.
Within the European Banking Union, the ECB shall ensure that the same EU-wide single rulebook of prudential requirements (cf. Capital Requirements Directive - CRD IV) applies. The ECB plans to run the asset quality review of the banks it will directly supervise in the first half of 2014, followed by stress tests in cooperation with the European Banking Authority that will look at how banks react under certain shock scenarios. All results are due in October 2014. Following the review of bank balance sheets, the European Stability Mechanism (ESM) could also recapitalise banks directly.
The next step in the completion of the Banking Union is the establishment of a Single Resolution Mechanism, which is a centralised management of banking crises. Under the proposed rules, after notification of a bank failure by the ECB, the Single Resolution Board of the future Single Resolution Agency would prepare the resolution plan of the bank, and recommend to the Commission to initiate the resolution procedure and national authorities would then execute the plan under supervision. A Single Resolution Fund will be set up to support the resolution process.
Lastly, the European Parliament and the Council are considering a proposal establishing a common framework of rules for protecting deposits and for making instruments available to ensure that banks are restructured via bail-in mechanisms and national resolution funds, instead of taxpayers.
The Single Supervisory Mechanism is set to enter into force in mid-2014 and the Single Resolution Mechanism should commence operations in January 2015.