COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL A Roadmap towards a Banking Union
Date: 2012-09-12
Institutions: European Commission
Subjects: European integration, banking system, economic recession, euro area, single market

EUROPEAN COMMISSION 

Brussels, 12.9.2012  
COM(2012) 510 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

A Roadmap towards a Banking Union 

EN 

   EN 

 
 
 
  
 
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

A Roadmap towards a Banking Union 

2 

 
 
1. 

INTRODUCTION 

Over  the  past  four  years,  the  EU  has  responded  decisively  to  the  economic  and  financial 
crisis.  Significant  improvements  have  been  made  to  the  Economic  and  Monetary  Union 
(EMU),  and  a  substantial  financial  reform  agenda  is  being  implemented,  fulfilling 
commitments  made  in  the  G20  in  response  to  the  financial  crisis,  and  to  make  financial 
institutions and markets more stable, more competitive and more resilient1.  

Completing this reform of the EU regulatory framework is essential but will not be sufficient 
to  successfully  address  significant  threats  to  financial  stability  across  the  Economic  and 
Monetary Union. Further steps are needed to tackle the specific risks within the Euro Area, 
where pooled monetary responsibilities have spurred close economic and financial integration 
and increased the possibility of cross-border spill-over effects in the event of bank crises, and 
to break the link between sovereign debt and bank debt and the vicious circle which has led to 
over  €4,5  trillion  of  taxpayers  money  being  used   to  rescue  banks  in  the  EU.  Coordination 
between supervisors is vital but the crisis has shown that mere coordination is not enough, in 
particular in the context of a single currency and that there is a need for common decision-
making.  It  is  also  important  to  curtail  the  increasing  risk  of  fragmentation  of  EU  banking 
markets, which significantly undermines the single market for financial services and impairs 
the effective transmission of monetary policy to the real economy throughout the Euro Area. 

The Commission has therefore called2 for  a  banking union  to  place the banking sector on a 
more  sound  footing  and  restore  confidence  in  the  Euro  as  part  of  a  longer  term  vision  for 
economic and fiscal integration. Shifting the supervision of banks to the European level is a 
key  part  of  this  process,  which  must  subsequently  be  combined  with  other  steps  such  as  a 
common system for deposit protection, and integrated bank crisis management. The report by 
the  Presidents  of  the  European  Council,  the  Commission,  the  Eurogroup  and  the  European 
Central  Bank  (ECB)  of  26  June  20123  endorsed  this  vision.  For  its  part,  the  European 
Parliament has recommended steps in the same direction, for example in its report from July 
2010 on cross-border crisis management in the banking sector4. This was also confirmed by 
the Euro Area Summit of 29 June 20125. 

Ensuring that bank supervision and resolution across the Euro Area meets high standards will 
reassure  citizens  and  markets  that  a  common,  high  level  of  prudential  regulation  is 

1 http://ec.europa.eu/internal_market/finances/policy/map_reform_en.htm  
2 http://ec.europa.eu/commission_2010-2014/president/news/archives/2012/06/20120626_speeches_2_en.htm 
3 http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131201.pdf 
4  European  Parliament  resolution  of  7  July  2010  with  recommendations  to  the  Commission  on  Cross-Border 

Crisis Management in the Banking Sector (2010/2006(INI))   

5  "The  Commission  will  present  Proposals  on  the  basis  of  Article  127(6)  for  a  single  supervisory  mechanism 
shortly.  We  ask  the  Council  to  consider  these  Proposals  as  a  matter  of  urgency  by  the  end  of  2012. 
When  an  effective  single  supervisory  mechanism  is  established,  involving  the  ECB,  for  banks  in  the 
euro  area  the  ESM  could,  following  a  regular  decision,  have  the  possibility  to  recapitalize  banks 
directly. This would rely on appropriate conditionality, including compliance with state aid rules, which 
should  be  institution  specific,  sector-specific  or  economy-wide  and  would  be  formalised  in  a 
Memorandum 
Understanding".  
of 
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131359.pdf  

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consistently applied to all banks. If banks get into difficulties in the future, the public should 
have the confidence that ailing banks will be restructured or closed while minimizing costs for 
the taxpayer. This future system will help build the necessary trust between Member States, 
which is a pre-condition for the introduction of any common financial arrangements to protect 
depositors and support orderly resolution of failing banks.  

This communication accompanies two legislative proposals, respectively for the setting up of 
a single supervisory mechanism by conferring specific tasks on the ECB concerning policies 
relating  to  the  prudential  supervision  of  credit  institutions  and  for  adaptations  to  the 
Regulation  setting  up  the  European  Banking  Authority  (EBA)6.  These  legislative  proposals 
mark a first  important step which will make a qualitative improvement in financial stability 
and confidence in the Euro Area in particular. This communication sets the single supervisory 
mechanism in context and indicates further work towards a banking union beyond these first 
proposals. 

2. 

THE BANKING UNION AND THE SINGLE MARKET 

The  single  market  for financial services is based on common rules which ensure that banks 
and other financial institutions which under the Treaty enjoy rights of free establishment and 
free provision of services are subject to equivalent rules and proper supervision across the EU. 

The creation of the banking union must not compromise the unity and integrity of the single 
market which remains one of the greatest achievements of European integration. Indeed, the 
banking  union  rests  on  the  completion  of  the  programme  of  substantive  regulatory  reform 
underway for the single market (the "single rulebook").  

The  single  market  and  the  banking  union  are  thus  mutually  reinforcing  processes.  Work  to 
strengthen the single market must continue across all existing areas covered by Commission 
proposals.  

Moreover,  in  three  areas  of  specific  relevance  to  the  banking  union,  this  work  should  be 
accelerated and agreement between the co-legislators on the relevant proposals reached before 
the end of 2012:  

– 

Stronger  prudential  requirements  for  banks  have  been  proposed.  With  its  proposals 
on  bank  capital  requirements  ("CRD4")7,  the  Commission  launched  the  process  of 
implementing the new global standards on bank capital and liquidity. The creation of 
the  single  supervisory  mechanism  should  not  require  substantive  changes  to  the 
proposed regulation and directive, although in a limited number of areas, some fine-
tuning  may  be  required  to  reflect  the  new  situation.  During  the  final  stages  of  the 
CRD4 negotiations, the Commission  will pay particular attention  to ensure  that the 
texts agreed are technically compatible with the proposed Regulation setting up the 
single supervisory mechanism, and will work with the European Parliament and the 
Council in this perspective. This will include in particular ensuring that all provisions 

6 Regulation (EU) No 1093/2010  
7 http://ec.europa.eu/internal_market/bank/regcapital/new_proposals_en.htm  

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– 

– 

of the proposed CRD4 Directive are operational for application both at national level 
and by the ECB.  

The coverage of national Deposit Guarantee Schemes (DGS) has already been raised 
to  a  harmonised  level  of  €100,000  per  deposito r,  per  institution,  effective  as  of  31 
December  2010.  In  July  2010,  the  Commission  proposed8  going  further,  with  the 
harmonisation and simplification of protected deposits, faster pay-outs and improved 
financing, notably through the ex-ante funding of deposit guarantee schemes paid for 
by  contributions  from  banks  and  a  mandatory  borrowing  facility  between  national 
schemes within certain fixed limits.   

The  Commission's  proposal  on  recovery  and  resolution  tools  for  banks  in  crisis, 
adopted on 6 June 20129, is the last in a series of proposed measures to strengthen 
Europe's  banking  sector  and  to  avoid  the  spill-over  effects  of  any  future  financial 
crisis  with  negative  effects  on  depositors  and  taxpayers.  To  ensure  that  financial 
stability is upheld while bank shareholders and creditors bear their full share of bank 
losses  and  recapitalisation  costs,  the  Commission  has  proposed  a  common 
framework  of  rules  and  powers.  This  will  help  Member  States  prevent  bank  crises 
from emerging in the first place and, if such bank crises still emerge, to manage them 
in a more orderly and effective way. Member States would be required to establish 
an  ex-ante  resolution  fund  paid  for  by  contributions  from  banks,  and  provision  is 
made for a mandatory borrowing facility between national schemes, again subject to 
clear limits. 

These rules will therefore constitute a common foundation across the single market on which 
the  banking  union  proposals  can  build.  This  single  rulebook  is  needed  for  the  stability  and 
integrity of the EU's internal market in financial services. It provides a common foundation 
which allows a move to the banking union without any risk of fragmenting the single market. 
Swift delivery of the outstanding reforms on capital requirements, deposit guarantee schemes, 
and bank resolution by the co-legislators by the end of the year, is therefore paramount.  

These rules also have to be applied in the same way across the whole Union, through coherent 
and  convergent  supervision  of  credit  institutions  by  national  supervisors  and  the  ECB.  The 
European  Banking  Authority  (EBA)  has  a  crucial  role  in  delivering  this  objective,  in 
particular,  by  the  set  of  instruments  and  powers  provided  by  its  founding  regulation 
(addressing  breaches  of  Union  law,  mediation,  binding  technical  standards,  guidelines,  and 
recommendations). It is therefore critical that the EBA plays fully its role to build a common 
legal framework and supervisory culture across the whole Union. 

Moreover, in order to avoid any divergence between the Euro Area and the rest of the EU, the 
single  rulebook  should  be  underpinned  by  uniform  supervisory  practices.  Different 
supervisory handbooks and supervisory approaches between the Member States participating 
in  the  single  supervisory  mechanism  and  the  other  Member  States  pose  a  risk  of 
fragmentation of the single market, as banks could exploit the differences to pursue regulatory 
arbitrage. The EBA should develop a single supervisory handbook to complement the single 
rulebook. 

8 http://ec.europa.eu/internal_market/bank/docs/guarantee/200914_en.pdf  
9 http://ec.europa.eu/internal_market/bank/crisis_management/index_en.htm  

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Any  measures  adopted  by  the  ECB  –  for  example  to  spell  out  further  details  on  how 
prudential supervision is carried out in the context of the specific supervisory structure created 
by the single supervisory mechanism – must be in line with the single rulebook including the 
technical standards set out by delegated acts adopted by the European Commission. Finally, it 
should be noted that today's  proposal maintains  the  current  balance  between  home  and  host 
Member States, including as regards participation in supervisory colleges. 

The effective impact and implications of the single supervisory mechanism on the operational 
functioning of the EBA will be further examined in the forthcoming review on the functioning 
of  the  European  Supervisory  Authorities  to  be  presented  by  the  Commission  by  2  January 
201410.  In  that  context,  the  Commission  will  in  particular  examine  whether  the  role  of  the 
EBA  with  regard  to  stress  testing  exercises  needs  to  be  strengthened,  to  avoid  making  the 
authority too dependent on information and contributions by those authorities competent for 
assessing the effective resilience of the banking sector across the Union. 

In parallel, the Commission will continue to strengthen financial stability and ensure a level 
playing  field  in  the  EU  single  market  for  banking  through  its  control  of  state  aid  and 
conditionality for economic adjustment aid. 

Key actions 

The Commission calls on the European Parliament and the Council to reach agreement by 
end-2012 on:  

(i) the CRD4 proposals, making them applicable both across the single market and within the 
context of the single supervisory mechanism; 

(ii) the proposal for a Directive on Deposit Guarantee Schemes as proposed by the 
Commission; 

(iii) the proposal for a Directive on bank recovery and resolution.  

COMPLETING THE BANKING UNION 

3. 
As set out by the Commission11 before the June 2012 European Council and in the report of 
the  Presidents  of  the  European  Council,  the  Commission,  the  Eurogroup  and  the  European 
Central  Bank  of  26  June  201212,  completing  the  banking  union  will  require  further  work  to 
deliver  a  single  supervisory  mechanism,  a  common  system  for  deposit  guarantees  and  an 
integrated  crisis  management  framework.  The  establishment  of  the  single  supervisory 
mechanism is a crucial and significant first step.   

10 Pursuant to Article 81 of the Regulations establishing the European Supervisory Authorities [Regulation (EU) 

No 1093/2010, Regulation (EU) No 1094/2010, and Regulation (EU) No 1095/2010] 

11 http://ec.europa.eu/europe2020/banking-union/index_en.htm  
12 http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131201.pdf 

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3.1. 

A Single Supervisory Mechanism 

The single supervisory mechanism which the Commission is proposing today is based on the 
transfer to the European level of specific, key supervisory tasks for banks established in the 
Euro Area Member States. While retaining ultimate responsibility, the ECB would carry out 
its  tasks  within  the  single  supervisory  mechanism  composed  of  the  ECB  and  national 
supervisory  authorities.  This  structure  will  provide  strong  and  consistent  supervision  across 
the  Euro  Area,  while  making  best  use  of  the  local  and  specific  know-how  of  national 
supervisors. This will ensure that supervision remains highly aware of all national and local 
conditions relevant for financial stability. The Commission also proposes a mechanism which 
will allow Member States which have not adopted the Euro, but would like to participate in 
the single supervisory mechanism, to cooperate closely with the ECB. 

Under the single supervisory mechanism, the ECB will become responsible for supervising all 
banks within the banking union, to which it will apply the single rulebook applicable across 
the  single  market.  Recent  experience  has  shown  that  difficulties,  even  in  relatively  small 
banks,  can  have  significant  negative  impacts  on  the  financial  stability  of  Member  States. 
Therefore, from the first day, the ECB will be empowered to take over the supervision of any 
bank in the Euro Area if it so decides, in particular if the bank is receiving public support. For 
all other banks, ECB supervision will be phased in automatically: on 1 July 2013 for the most 
significant European systemically important banks, and on 1 January 2014 for all other banks. 
Therefore,  by  1  January  2014  all  banks  in  the  Euro  Area  will  come  under  European 
supervision. 

The  ECB  will  be  granted  key  specific  supervisory  tasks  which  are  indispensable  to  ensure 
detection of risks threatening the viability of banks. It will be empowered to require banks to 
take the necessary remedial action. The ECB will, inter alia, be the competent authority for 
authorizing  credit  institutions,  assessing  qualifying  holdings,  ensuring  compliance  with  the 
minimum capital requirements, ensuring the adequacy of internal capital in relation to the risk 
profile of a credit institution ("Pillar 2 measures"), conducting supervision on a consolidated 
basis and supervisory tasks in relation to financial conglomerates. The ECB will also ensure 
compliance with provisions on leverage and liquidity, apply capital buffers and carry out, in 
coordination with resolution authorities, early intervention measures when a bank is in breach 
of, or is about to breach, regulatory capital requirements.   

The ECB will be vested with the necessary investigatory and supervisory powers to perform 
its tasks. Active involvement of national supervisors within the SSM is provided for to ensure 
the smooth and efficient preparation and implementation of supervisory decisions as well as 
the necessary coordination and information flow regarding issues of both local and European 
reach, in order to ensure financial stability across the Union and its Member States.  

All  tasks  not  explicitly  conferred  upon  the  ECB  will  remain  with  national  supervisors.  For 
example,  national  supervisors  will  remain  in  charge  of  consumer  protection  and  the  fight 
against  money  laundering,  and  of  the  supervision  of  third  country  credit  institutions 
establishing branches or providing cross-border services within a Member State. 

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The ECB must be able to carry out its new supervisory functions in full independence whilst 
being  fully  accountable  for  its  actions.  The  Commission  proposal  contains  strong 
accountability  safeguards,  notably  vis-à-vis  the  European  Parliament  and  the  Council,  to 
ensure democratic legitimacy. In addition, the proposal lays down a number of organisational 
principles  to  ensure  clear  separation  between  monetary  policy  and  supervision.  This  will 
mitigate  potential  conflicts  between  different  policy  objectives,  while  at  the  same  time 
allowing  full  advantage  to  be  taken  of  synergies.  All  preparatory  activities  and  policy 
execution will therefore be carried out by bodies and administrative divisions separate from 
monetary  policy  functions  through  a  supervisory  board  established  within  the  ECB  for  this 
express purpose.  

Finally,  the  proposed  amendments  of  the  EBA  Regulation  will  ensure  that  the  EBA  can 
continue to fulfil its mission effectively as regards all Member States. In particular, EBA will 
exercise  its  powers  and  tasks  also  vis-à-vis  the  ECB.  Voting  arrangements  within  the  EBA 
will  be  adapted  to  ensure  EBA  decision-making  structures  continue  to  be  balanced  and 
effective reflecting the positions of the competent authorities of Member States participating 
in the single supervisory mechanism and those which do not, and thereby preserving fully the 
integrity  of  the  single  market.  Amendments  of  voting  arrangements  have  been  targeted  to 
those areas where the EBA takes binding decisions on the application of the single rulebook 
when pursuing breaches of law and settling disagreements. In other areas, existing procedural 
safeguards  are  considered  sufficient  to  ensure  balanced  and  effective  decisions  making  in 
those  areas.  For  example,  draft  technical  standards  are  submitted  to  the  Commission  for 
adoption,  and  the  Commission  can  decide  not  to  endorse  or  to  modify  them,  in  particular 
when they are not in full conformity with the fundamental principles of the internal market for 
financial services. Finally, a targeted review clause has been inserted in the draft Regulation 
amending Regulation 1093/2010 so as to take into account in particular any developments in 
the  number  of  Member  States  whose  currency  is  the  Euro  or  whose  competent  authorities 
have entered into a close cooperation and examine whether in light of such developments any 
further adjustments of those provisions are necessary to ensure that EBA decisions are taken 
in the interest of maintaining and strengthening the internal market for financial services. 

Key Actions 

The Commission calls: 

(i)  on  the  Council  to  consider  and  adopt  urgently  the  proposal  for  a  Council  Regulation 
conferring  specific  tasks  on  the  ECB  concerning  policies  relating  to  the  prudential 
supervision of credit institutions taking into account the opinion of the European Parliament; 

(ii) on the European Parliament and the Council to consider and adopt urgently the proposal 
amending Regulation 1093/2010 establishing the EBA.  

Agreement on these two proposals should be reached before the end of 2012.  

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3.2. 

Next Steps in the Management of Bank Crises 

Global  financial  integration  and  the  EU  single  market  have  enabled  the  banking  sector  in 
some  Member  States  to  outgrow  national  GDP  many  times  over,  resulting  in  institutions 
which are "too-big-to-fail" and "too-big-to-save" under existing national arrangements. On the 
other hand, experience shows that the failure of even relatively small banks may cause cross-
border  systemic  damage.  Furthermore,  bank  runs  across  borders  can  critically  weaken 
national banking systems, further damaging the fiscal standing of the sovereign, and hastening 
funding problems for both.  

Reinforced supervision within the banking union will help improve the robustness of banks. If 
a  crisis  nonetheless  occurs  it  is  necessary  to  ensure  that  institutions  can  be  resolved  in  an 
orderly manner and that depositors are assured their savings are safe.  

Against  this  background,  the  Commission  has  underlined13  that  a  banking  union  should 
include a more centralised management of banking crises. The European Parliament has also 
called  for  progress  in  this  area.  The  need  for  "common  mechanisms  to  resolve  banks  and 
guarantee  customer  deposits"  was  also  referred  to  in  the  report  by  the  Presidents  of  the 
European Council, the Commission, the Eurogroup and the European Central Bank of 26 June 
201214.  

Therefore,  the  Commission  envisages  notably  making  a  proposal  for  a  single  resolution 
mechanism  which  would  govern  the  resolution  of  banks  and  coordinate  in  particular  the 
application of resolution tools to banks within the banking union. This mechanism would be 
more  efficient  than  a  network  of  national  resolution  authorities,  in  particular  in  the  case  of 
cross-border failures, given the need for speed and credibility in addressing banking crises. It 
would  be  a  natural  complement  to  the  establishment  of  a  single  supervisory  mechanism.  It 
would also entail significant economies of scale, and avoid the negative externalities that may 
derive from purely national decisions. It would take its decisions in line with the principles of 
resolution set out in the single rulebook which are consistent with international best practice 
and  in  full  compliance  with  Union  state  aid  rules.  In  particular  shareholders  and  creditors 
should bear the costs of resolution before any external funding is granted, and private sector 
solutions should be found instead of using taxpayers' money. 

Moreover, and based on an assessment of its functioning, such a single resolution mechanism 
could also be entrusted with further tasks of coordination regarding the management of crisis 
situations and resolution tools in the banking sector, as set out in the report presented in June 
2012  by  the  Presidents  of  the  European  Council,  the  Commission,  the  ECB  and  the 
Eurogroup. 

13 http://ec.europa.eu/europe2020/banking-union/index_en.htm  
14 http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131201.pdf  

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Key actions 

Once agreement on the existing DGS and Bank Recovery and Resolution proposals is 
achieved, the Commission envisages to propose notably a single resolution mechanism to 
resolve banks and to coordinate the application of resolution tools to banks under the banking 
union.  

4. 

NEXT STEPS 

The European Union has the means to address its current weaknesses and set up the banking 
union as an essential step towards a genuine Economic and Monetary Union. 

The Commission calls on the European Parliament and the Council to:  

– 

– 

– 

give their full support to the banking union and endorse the orientations and roadmap 
described in this Communication; 

give  the  highest  priority  in  the  legislative  process  to  the  actions  necessary  for 
establishing the banking union; 

finalise, as soon as possible and in any case before the end of the year, the proposals 
on the table on: 

– 

– 

– 

– 

– 

– 

Deposit Guarantee Schemes; 

access  to  the  activity  of  credit  institutions  and  the  prudential  supervision  of 
credit institutions and investment firms (CRD); 

prudential requirements for credit institutions and investment firms (CRR); 

a  framework  for  the  recovery  and  resolution  of  credit  institutions  and 
investment firms; 

conferring  certain  tasks  on  the  ECB  relating  to  the  prudential  supervision  of 
credit institutions; 

amending certain provisions of the EBA Regulation.  

With  this  communication  and  the  accompanying  legislative  proposals,  the  Commission  has 
acted swiftly and responsibly in response to the mandate given by the European Council and 
the Heads of State and Government of the Euro area at the end of June. Other institutions now 
need to do their part to ensure the single supervisory mechanism is established by 1 January 
2013. 

10