ABSTRACT

Banking union has five components: regulation, supervision, resolution, deposit guarantees and the provision of liquidity to the banking system. Initially, banking union has focused on reducing the dependence of governments on banks. The single supervision mechanism (SSM) should reduce significantly the probability that banks will fail, and the single resolution mechanism (SRM) should reduce significantly if not eliminate entirely. The SRM creates a single resolution authority for the euro area under the direction of a Single Resolution Board (SRB). It operates within the context of the European Union (EU) Banking Recovery and Resolution Directive (BRRD). The European central bank (ECB) has the power to put a bank into resolution, if the bank reaches the point of non-viability. The ECB will directly supervise the largest 130 banks and oversee the supervision of the remaining banks by the national competent authorities (NCA). Single deposit guarantee scheme (SDGS), in the original proposals, was a third pillar for banking union.