Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions "Towards the completion of the Banking Union"
Date: 2015-11-24
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: bank deposit, banking policy, banking system, financial control, financial market, financial policy, fund (EU), insurance, law of banking, single market

EN 

   EN 

   EUROPEAN COMMISSION  Strasbourg, 24.11.2015  COM(2015) 587 final   Communication from the Commission to the European Parliament, the Council, the European Central Bank,  the European Economic and Social Committee and the Committee of the Regions   "Towards the completion of the Banking Union"  
 
 
Communication from the Commission to the European Parliament, the Council, 
the European Central Bank, the European Economic and Social Committee and 
the Committee of the Regions  

"Towards the completion of the Banking Union" 

1. 

Background 

The  Five  Presidents’  Report  of  22  June  20151  and  the  follow-up  Commission 
Communication of 21 October 20152 have set out a plan for deepening Economic and 
Monetary Union (EMU). Completing the Banking Union is an indispensable element of 
that  plan.  EMU  needs  a  fully-functioning  Banking  Union  to  ensure  effective 
transmission  of  the  single  monetary  policy,  better  risk  diversification  across  Member 
States  and  adequate  financing  of  the  economy.  In  addition,  the  completion  of  the 
Banking Union will reinforce financial stability in EMU by restoring confidence in the 
banking  sector  through  a  combination  of  measures  designed  to  both  share  and  reduce 
risks.  

The EU has implemented a substantial financial-sector reform agenda in recent years. In 
this context, the regulatory framework for banks has been strengthened on the basis of 
common  rules,  which  ensure  more  consistent  regulation  and  high-quality  supervision 
across  the  EU.  This  framework  will  incentivise  more  responsible  behaviour  in  the 
banking sector. For example:  

-  Stronger  prudential  requirements  for  banks,  based  on  new  global  standards,  have 
been  introduced  under  CRDIV/CRR.  In  this  way,  the  capacity  of  banks  to  absorb 
adverse economic and financial shocks has been enhanced by increasing the quality 
and quantity of capital, expanding risk coverage, containing leverage and improving 
governance and transparency.  

-  A new recovery and resolution framework for banks that are failing or likely to fail 
has  been  established  under  the  Bank  Recovery  and  Resolution  Directive  (BRRD). 
This  framework  will  allow  Member  States  to  protect  taxpayers  by  managing  bank 
crises in a more timely and orderly manner.  

-  The functioning of national Deposit Guarantee Schemes (DGSs) has been enhanced 
by  the  Deposit  Guarantee  Scheme  Directive  (DGSD),  which  has  harmonised  their 
coverage, strengthened their funding arrangements and shortened the time-limit for 
pay-outs.   

1  The  report  of  the  Presidents  of  the  European  Parliament,  European  Council,  the  Commission,  the 
Eurogroup and the European Central Bank on Completing Europe's Economic and Monetary Union. 
See: http://ec.europa.eu/priorities/economic-monetary-union/docs/5-presidents-report_en.pdf.  

2  Communication  from  the  Commission  to  the  European  Parliament,  the  Council  and  the  European 
Central on Steps towards Completing Economic and Monetary Union. 
See: https://ec.europa.eu/transparency/regdoc/rep/1/2015/EN/1-2015-600-EN-F1-1.PDF.  

2 

 
 
 
 
 
 
                                                            
 
This  reinforced  regulatory  framework  (single  rulebook)  constitutes  a  common 
foundation for the single market of 28 Member States, but also for the Banking Union.  

A  key  objective  of  the  Banking  Union  is  to  reverse  the  fragmentation  of  financial 
markets  since  the  euro  crisis,  by  weakening  the  link  between  banks  and  their  national 
sovereigns (whereby bank failures can imperil public finances, and sovereign stress can 
destabilise banks). In order to meet this objective, it was decided that  the supervision, 
resolution  and  resolution  funding  of  significant  banks  should  be  conducted  at  the 
Banking Union level.  

To  this  end,  the  Single  Supervisory  Mechanism  (SSM)  and  the  Single  Resolution 
Mechanism (SRM) – the first two pillars of the Banking Union – have been established. 
The SSM became operational in November 2014 and is already delivering independent 
and  uniform  prudential  supervision.  The  SRM  will  be  fully  operational  from  January 
2016,  when  contributions  to  the  Single  Resolution  Fund  (SRF)  will  also  begin. 
However,  three  years  after  the  European  Council  agreed  on  a  roadmap  for  the 
completion of EMU based on deeper integration and mutual support3, the third pillar of 
the Banking Union – a common deposit insurance scheme – is still missing. In addition, 
it  has  been  agreed  that  the  Banking  Union  should  have  an  effective  common  fiscal 
backstop to be available as a last resort but work on this matter has not yet started (see 
section 3.2 below).  

Action is now needed to ensure full and correct implementation of those elements of the 
Banking Union that are already in place and to put in place the other missing elements. 
Member  States  have  agreed  to  provide  the  SRF  with  effective  bridge  financing 
arrangements by January 2016 and to establish the common fiscal backstop at the latest 
by the end of 2023.4 More recently, the Five Presidents’ Report proposed a number of 
measures to complete the Banking Union; and a Communication from the Commission 
followed up by focusing on four key requirements:  

1.  full  and  rapid  transposition  and  implementation  of  the  already  agreed  legal 
provisions  which  have  already  been  agreed  (notably  the  BRRD  and  DGSD  –  see 
section 2 below);  

2.  swift agreement on an effective bridge-financing arrangement for the SRF and on a 
common fiscal backstop which should be fiscally neutral over the medium term, i.e. 
any use of taxpayers money would be subsequently reimbursed by the banks;  

3.  a legislative proposal for a European Deposit Insurance Scheme (EDIS); and  

4.  a  parallel  effort  to  further  reduce  risks  in  the  banking  sector  and  weaken  the  link 

between banks and their national sovereign.   

3 European Council conclusions on completing EMU adopted on 14 December 2012. 
See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/134320.pdf.  
4 See Eurogroup and ECOFIN Ministers' Statement of December 2013.  

3 

 
 
 
 
 
 
                                                            
In  accompanying  the  Commission’s  legislative  proposal  to  establish  EDIS,  this 
Communication  places  the  proposal  in  the  broader  context  of  completing  the  Banking 
Union  and  the  necessary  additional  measures  of  risk  sharing  and  risk  reduction  in  the 
banking sector.  
2. 

Implementing the rulebook for the Banking Union  

CRDIV/CRR, the BRRD and the DGSD provide the rulebook for the Banking Union. 
These pieces of legislation were all adopted in 2014 and must now be transposed into 
national law to assure the proper functioning of the Banking Union. While CRDIV/CRR 
has been fully transposed by all of the Member States, some Member States – including 
some of those participating in the Banking Union  – have not yet met their obligations 
for full transposition of the BRRD and the DGSD for which the transposition deadlines 
(31 December  2014  and  3  July  2015  respectively)  have  already  passed.  The 
Commission  has  begun  infringement  proceedings  against  several  of  these  Member 
States before the European Court of Justice. In this context, the Commission has called 
for ratification of the Inter-Governmental Agreement on the SRF by the deadline of 30 
November,  where  a  number  of  Member  States  have  not  yet  completed  the  ratification 
procedure.  While  the  majority  of  Member  States  are  expected  to  meet  their 
commitments  on  transposition  and  ratification  by  end-2015,  the  credibility  of  the 
Banking Union depends on all of the participating Member States meeting all of their 
legal  commitments.5  Meanwhile,  the  Commission  will  ensure  that  the  secondary 
legislation required to make the Banking Union operational, e.g. the bail-in provisions 
of the BRRD, is also adopted in a timely manner. 

3. 

Bridge financing for the SRF and a common fiscal backstop 

3.1 

A bridge-financing arrangement  

Bank contributions to the SRF will begin in 2016, but the SRF will not reach its steady-
state size of approximately 55 billion Euros until 2024. Contributions will be mutualised 
on  a  progressive  basis  over  an  eight-year  period.  These  features,  coupled  with  a 
complex  structure  of  separate  and  national  compartments  during  the  transition  to  full 
mutualisation, will limit the borrowing capacity of the SRF in the coming years. A key 
concern is that the SRF could suffer capacity constraints, particularly in its early years, 
and might be unable to provide the required funding for a bank resolution operation(s). 
In  such  circumstances,  the  Member  State(s)  concerned  would  be  required  to  provide 
funding  for  resolution,  thereby  retaining  the  link  between  banks  and  their  national 
sovereign.  

5 On 24 November 2015, the Bank Recovery and Resolution Directive had not yet, or only partially been 
transposed  by  11  Member  States:  Belgium,  Czech  Republic,  Italy,  Cyprus,  Lithuania,  Luxembourg, 
Netherlands, Poland, Romania, Slovenia, and Sweden.   
On 24 November 2015, the Deposit Guarantee Directive had not yet, or only partially been transposed by 
15  Member  States:  Belgium,  Czech  Republic,  Estonia,  Ireland,  Greece,  Italy,  Cyprus,  Lithuania, 
Luxembourg, Malta, Netherlands, Poland, Romania, Slovenia, and Sweden.   
On 24 of November 2015, the Intergovernmental Agreement had not yet been ratified or the instruments 
of ratification had not yet been deposited by 9 Member States: Belgium, Estonia, Greece, Ireland, Italy, 
Lithuania, Luxembourg, Malta, and Slovenia. 

4 

 
 
 
 
                                                            
To  address  the  risk  of  inadequate  SRF  capacity,  the  participating  Member  States  are 
discussing  the  establishment  of  national  credit  lines  to  support  their  respective 
compartments.  As  the  size  of  these  compartments  will  fall  with  progressive 
mutualisation  of  contributions,  Member  States  credit  lines  would  be  supporting  a 
declining  share  of  the  total  SRF  over  time.  It  is  essential,  therefore,  that  the  Member 
States not only take the necessary steps to put these national credit lines in place before 
1 January  2016 when the Single Resolution  Board becomes  fully operational,  but that 
they begin discussion of a more robust mutualised credit line via the European Stability 
Mechanism (ESM).   

3.2 

A common fiscal backstop as a last resort 

A  well-functioning  SSM  and  SRM  should  significantly  reduce  the  likelihood  of  bank 
failures  and  should  ensure  that  taxpayers  are  protected  from  the  costs  of  any  bank 
resolution.  Further  protection  is  provided  by  the  wide  range  of  prudential  measures, 
which  have  been  taken  in  respect  of  banks,  with  the  objective  of  strengthening 
supervision  and  crisis  management,  improving  the  amount  and  quality  of  capital, 
reducing  concentration  of  exposures,  fostering  deleveraging,  limiting  pro-cyclical 
lending behaviour, reinforcing access to liquidity, addressing systemic risk due to size, 
complexity and  interconnectedness, reinforcing  depositor  confidence  and  incentivising 
proper risk management via rules on governance.  

However,  even  this  extensive  menu  of  prudential  and  crisis  management  measures 
cannot  eliminate  entirely  the  risk  that  public  funding  may  be  required  to  enhance  the 
financial capacity of resolution funds. For this reason, Member States have agreed that 
the Banking Union requires access to an effective common fiscal backstop to be used as 
a last resort. Such a backstop would imply a temporary mutualisation of possible fiscal 
risk related to bank resolutions across the Banking Union. However, use of the backstop 
would  be  fiscally  neutral  in  the  medium  term,  as  any  public  funds  used  would  be 
reimbursed over time by the banks (via ex-post contributions to the SRF). 

4. 

A European Deposit Insurance Scheme (EDIS) 

4.1 Rationale for EDIS  

A  common  deposit  insurance  scheme  was  discussed  in  preliminary  discussions  of 
Banking  Union  in  2012.  The  Commission  proposed  to  include  mandatory  mutual 
borrowing and lending between national deposit guarantee schemes in its amendment of 
the  existing  DGS  Directive  in  2012,  but  this  proposal  was  not  accepted.  The  DGS 
Directive  of  2014  introduced  improvements  to  national  deposit  guarantee  schemes  by 
reducing pay-out periods to depositors and requiring guarantee funds to be built-up to a 
specified  target  level  by  2024.  The  Directive  also  provides  for  voluntary  lending 
arrangements between national schemes, as a source of liquidity support in the event of 
need.  

Despite  the  improvements  brought  by  the  2014  Directive,  the  absence  of  a  common 
deposit  insurance  scheme  for  the  Banking  Union  means  that  depositors  remain 
vulnerable  to  large  local  shocks,  which  could  overwhelm  national  deposit  guarantee 
schemes. At the same time, there is no level playing field within the Banking Union for 

5 

 
 
 
depositors and banks seeking to attract their deposits. The divergences between national 
deposit guarantee schemes may also contribute to market fragmentation by affecting the 
ability and willingness of banks  to expand  their operations on a  cross-border  basis. In 
particular,  the  choice  of  cross-border  group  structure  for  banks  (i.e.  branches  or 
subsidiaries)  could  be  affected,  with  banks  choosing  between  their  home  deposit 
guarantee  scheme  (branch)  or  the  host  scheme  (subsidiary),  depending  on  the  relative 
soundness of the two schemes concerned.  

EDIS would increase the resilience of the Banking Union against future financial crises 
by  reducing  the  vulnerability  of  national  deposit  guarantee  schemes  to  large  local 
shocks and further reducing the link between banks and their home sovereign. In these 
circumstances, EDIS can help to reassure depositors across the Banking Union and so 
reduce the risk of bank runs and increase financial stability. EDIS would also enhance 
cooperation between national DGSs in responding to cross-border bank failures. EDIS 
will foster depositor confidence independently of the location of a bank, thus fostering a 
level playing field and furthering financial integration. In all of these ways, EDIS is the 
logical  complement  of  elevating  responsibility  for  bank  supervision  and  resolution  to 
the  Banking  Union  level.  As  responsibility  for  supervision  and  resolution  are  now 
shared as a result of SSM and SRM, the circumstances in which a national DGS has to 
pay  out  insured  depositors  or  contribute  to  resolution  are  to  a  large  extent  no  longer 
under  national  control.  Accordingly,  the  Commission  has  adopted  -  together  with  this 
Communication - a legislative proposal for EDIS.  

4.3 How would EDIS work? 

4.3.1 The European Deposit Insurance Fund  

A  European  Deposit  Insurance  Fund  ("the  Deposit  Insurance  Fund"),  which  will  be 
distinct  from  the  SRF,  will  be  established  to  complement  existing  national  deposit 
guarantee funds. Contributions will be levied on banks to finance the Deposit Insurance 
Fund. 

In  the  reinsurance  stage  of  EDIS,  where  risks  largely  remain  at  the  national  level,  an 
individual  bank’s  risk  profile  is  determined  relative  to  the  remainder  of  its  national 
banking  system.  Once  EDIS  becomes  a  system  with  joint  liability  at  Banking  Union 
level  (as  of  the  first  year  of  co-insurance),  an  individual  bank’s  risk  profile  is 
determined  relative  to  all  banks  in  the  Banking  Union.  This  would  ensure  that  EDIS 
remains  cost-neutral  overall  for  banks  and  national  DGSs,  and  avoid  complications in 
determining banks’ risk profiles in the build-up phase of the Deposit Insurance Fund. 

A key principle is that all phases of EDIS should not increase the overall costs for the 
banking  sector,  as  compared  to  current  obligations  under  the  2014  DGS  Directive.  In 
other  words,  EDIS  will  improve  the  economic  efficiency  of  the  existing  deposit 
insurance  arrangements  within  the  Banking  Union  by  gradually  pooling  the  available 
funds  for  payout  events  without  requiring  an  overall  increase  in  banks’  contributions. 
The  banks’  EDIS  contributions  will  be  deducted  from  their  contributions  to  national 
deposit  guarantee  schemes.  Contributions  to  national  schemes  will  be  progressively 
reduced in parallel with increases in EDIS contributions.   

6 

 
 
A  strong  and  independent  authority  at  Banking-Union  level  would  be  required  to 
administer  EDIS,  decide  on  the  risk-adjusted  contributions  from  the  banks,  monitor 
contribution inflows and manage pay-out cases. This role could be played by the Single 
Resolution Board (Board), with an appropriately modified governance structure for its 
new  DGS  tasks  in  order  to  manage  any  potential  conflict  of  interest  between  the 
resolution and deposit guarantee functions. The Board could administer the SRF and the 
Deposit  Insurance  Fund  together,  thereby  creating  synergies  when  combining 
responsibilities for resolution and deposit insurance. This should enable consistency and 
efficiency in the decision-making process and swift decisions. This arrangement would 
establish  the  Board  as  the  key  first  point  of  contact  in  a  crisis,  facilitating  swift  crisis 
management by the Board, and thereby limiting the possibility of contagion. It would, 
however,  be  necessary  to  address  potential  conflicts  of  interest  by  ensuring  that  the 
Deposit Insurance Fund would be appropriately segregated from the SRF.  

4.3.2 Reinsurance moving to co-insurance 

The  proposal  for  EDIS  combines  the  reinsurance  and  co-insurance  approaches  as 
sequential steps, beginning with the re-insurance approach, then moving to a system of 
co-insurance  which  would  gradually  increase  the  rate  of  mutualisation  until  a  full 
insurance  scheme  ("full  insurance") is  achieved.  The  Commission  proposes  that  EDIS 
would initially be based on the principle of reinsurance, and will not in the short term 
fully mutualise risk.    

In order to limit the liability for the Deposit Insurance Fund, reduce moral hazard at the 
national  level  and  address  the  possible  divergences  in  the  capitalisation  level  of  the 
existing  national  DGSs,  in  the  re-insurance  phase,  the  national  DGS  could  access  the 
Deposit Insurance Fund only when Member States have fully complied with obligations 
under the DGS Directive and it has first exhausted all its own resources and under the 
condition  that  it  complied  with  the  DGS  Directive.    Moreover,  the  Deposit  Insurance 
Fund would only contribute a certain amount of any pay-out, providing assistance to the 
national DGS up to a specified percentage of the shortfall faced by the DGS and subject 
to  a  specified  overall  cap.  These  conditions  for  receiving  assistance  from  the  Deposit 
Insurance Fund are necessary to address moral hazard risk and to avoid the possibility 
of  “first-mover  advantages”  and  of  a  national  DGS  receiving  more  EDIS  assistance 
simply  because  action  had  not  been  taken  to  build  up  sufficient  national  funding. 
Member States would need to continue to build up their national DGSs. As pay-outs by 
the  Deposit  Insurance  Fund  would  be  dependent  on  compliance  with  the  DGSD,  the 
system would provide additional incentives for Member States to fully comply with the 
DGSD. This safeguard would ensure thay DGSs do not take advantage of EDIS when 
they  are  depleted.  Moreover,  caps  for  the  intervention  of  EDIS  are  also  provided  to 
ensure that it is not depleted by individual payout events.   

This  re-insurance  approach  would  weaken  the  link  between  banks  and  their  national 
sovereign, but it would not provide a comprehensive insurance for national schemes to 
fall back on, nor ensure that all retail deposits in the Banking Union enjoy an equal level 
of protection.   

So  after  a  phase  of  operation  as  a  re-insurance  scheme,  EDIS  would  become  a 
progressively mutualised system ("co-insurance"), still subject to appropriate limits and 

7 

 
 
safeguards,  to  become  full  insurance  by  2024.    Over  the  period  to  2024,  the  relative 
contribution  from  the  Deposit  Insurance  Fund  to  depositor  pay-outs  would  gradually 
increase  to  100  percent,  implying  full  insurance  of  depositor  risk  across  the  Banking 
Union. 

The key difference in the two approaches of reinsurance and co-insurance would be that 
co-insurance  implies  that  pay-outs  would  be  shared  between  national  DGS  and  the 
Deposit  Insurance  Fund  as  of  the  first  euro  of  loss.  However,  the  reinsurance  and 
coinsurance approaches would enjoy many common features, so the evolution between 
the two approaches should not present major problems from an operational perspective. 
In  particular,  in  both  approaches,  pay-outs  from  the  Deposit  Insurance  Fund  would 
continue to be dependent on national DGSs complying with the DGSD and the national 
DGS  would  be  obliged  to  reimburse  EDIS  if  it  subsequently  received  ex-post 
contributions from its banks and/or received funds from an insolvency procedure.   

The architecture of EDIS would follow the typical Banking Union construction: a single 
rule  book  in  the  form  of  the  existing  DGS  Directive,  for  all  28  Member  States, 
complemented by EDIS, which would be mandatory for Euro area Member States and 
open to non-Euro area Member States wishing to participate.  In view of the close links 
between  EDIS  and  single  supervision  and  resolution,  non-Euro  area  Member  States 
joining  the  Banking  Union  would  be  required  to  participate  in  all  three  parts  of  the 
Banking Union.   

Finally, the Commission will make sure that no distortions occur in the single market by 
the  consistent  application  of  State  Aid  rules.    Funds  used  by  DGSs,  including  the 
Deposit  Insurance  Fund,  to  repay  depositors  for  unavailable  covered  deposits  in 
accordance with  the DGS Directive  do not constitute State aid or  Fund aid. However, 
where those funds are used in the restructuring of credit institutions and constitute State 
aid or Fund aid, they must comply with Article 108 of the Treaty on the Functioning of 
the  European  Union  and,  respectively,  with  Article  19  of  the  SRM  Regulation,  as 
amended.  Moreover,  it  is  very  much  the  Commission’s  expectation,  not  least  because 
the deadlines have already expired, that the BRRD and all its applicable rules should be 
fully transposed  by all Member States  and implemented  by the authorities responsible 
for resolution proceedings well before EDIS comes into force. 

5. 

Further reducing risk in the Banking Union  

The Commission is committed to further reduce risks and ensure a level playing field in 
the Banking Union by weakening the link between banks and their national sovereign. 
In  terms  of  specific  risk reduction measures, it is  important to  restate, once  again, the 
importance  of  implementing  agreed  measures:  so  the  first  priority  is  to  ensure  that 
Member  States  deliver  full  transposition  of  the  BRRD  and  the  DGSD.  To  this  end, 
infringement  proceedings  against  the  relevant  Member  States  are  underway.  The 
Commission has also urged Member States to ratify the IGA on bank contributions to 
the SRF.  

8 

 
 
 
 
 
Adequate bridge-financing arrangements for the SRF, a common fiscal backstop and a 
common  deposit  insurance  scheme  would  assure  the  most  effective  functioning  of  the 
Banking  Union.  A  common  feature  of  these  measures  is  that  they  reduce  the 
bank/sovereign  link  at  the  national  level  by  means  of  risk  sharing  among  all  the 
Member  States  in  the  Banking  Union.  However,  the  risk  sharing  implied  by  these 
measures must be accompanied by measures to reduce risk in the banking sector taken 
in  parallel  with  the  stages  of  establishing  EDIS.  If  the  costs  associated  with  bank 
failures  and  insolvencies  are  to  be  mutualised,  it  is  essential  that  the  risk  of  incurring 
such costs is contained to the maximum extent possible. This is not a new concern and 
many far-reaching measures to reduce such risks have already been taken (see section 1 
above). Indeed, the ECB has confirmed that the balance sheets of the banks covered by 
its  Comprehensive  Assessment  of  2014  are  now  sufficiently  resilient  even  under 
significant  economic  and  financial  stress.  Nevertheless,  additional  risk-reducing 
measures will be needed in parallel with work to establish EDIS.  

-  First, further action is needed to ensure that the SSM can function as effectively as 
possible. While the SSM has been operational for more than a year and has rapidly 
established its credentials as the single supervisor for the Banking Union, there is a 
need to reduce national options and discretions in the application of prudential rules. 
In  this  context,  substantial  progress  is  being  made  in  eliminating  many  of  these 
options and discretions in respect of micro-prudential rules (i.e. in the CRDIV/CRR) 
that  apply  to  banks  under  its  responsibility:  on  11  November  2015,  the  SSM 
launched a public consultation on harmonising the exercising of supervisory options 
and  discretions  within  the  Banking  Union.6  However,  there  remains  scope  to 
eliminate  some  of  the  remaining  options  and  discretions  through  EU  regulatory 
measures. The Commission will work with Member States and in close coordination 
with the SSM to propose regulatory measures with a view to aligning, as necessary, 
the  use  of  national  options  and  discretions.  In  the  course  of  the  SSM  review,  the 
Commission  will  also  examine  the  functioning  of  the  SSM  in  other  areas  and 
consider any possible improvements. Concerning national options and discretions in 
the  application  of  macro-prudential  rules,  the  Commission  will  also  consider 
possible revisions to the current regime, while retaining the necessary flexibility to 
respond to country-specific circumstances.   

-  Second,  the  harmonisation  of  national  deposit  guarantee  schemes  will  need  to 
advance  in  parallel  with  the  establishment  of  EDIS.  This  harmonisation  will  be 
essential  for  EDIS  to  operate  correctly  in  the  full  insurance  stage.    Despite  the 
further  harmonisation  measures  introduced  by  the  2014  DGS  Directive,  some 
important differences remain between national deposit guarantee schemes and these 
should be addressed within the context of the Banking Union. As part of the EDIS 
proposal,  access  to  coverage  by  EDIS  presupposes  compliance  with  fully 
harmonised funding requirements.  

-  Third,  the  Single  Resolution  Board  must  be  enabled  to  operate  as  effectively  as 
possible.  The Board will be fully operational from 2016 and has been working since 
March  2015  to  prepare  resolution  plans  for  banks  under  its  responsibility.  It  is 

6 See: https://www.bankingsupervision.europa.eu/legalframework/publiccons/html/reporting_options.en.html. 

9 

 
 
 
 
                                                            
liabilities 

essential that the Board can  respond in  a timely and effective manner in  the event 
that  a  bank(s)  is  failing  or  likely  to  fail,  so  as  to  safeguard  financial  stability  and 
limit the potential  costs to the wider banking sector and the taxpayer. To this end, 
the  proper 
the  availability  of  adequate  “bailinable” 
implementation of the minimum requirement for "own funds" and eligible liabilities 
(MREL) requirements will be crucial. In addition, the TLAC (Total Loss Absorbing 
Capacity) requirement has been developed at the international level by the Financial 
Stability Board. The Commission will bring forward a legislative proposal in 2016 
so that TLAC can be implemented by the agreed deadline of 2019. Implementation 
of TLAC would represent an additional harmonised minimum requirement to ensure 
that  banks  have  sufficient  loss  absorption  and  recapitalisation  capacity.  The 
operation  of  the  SRF  should  also  begin  smoothly,  with  contributions  from  all 
relevant banks flowing into the SRF on a timely and complete basis from 2016.   

through 

-  Fourth, it is essential that the use of public funds to sustain a solvent and resilient 
banking  sector  should  be  minimised  and  be  available  only  as  a  last  resort.  To  this 
end, there must be a consistent application of the bail-in rules under BRRD so as to 
ensure  that  the  costs  of  resolving  banks  that  are  failing  or  likely  to  fail  are  borne 
primarily  by  their  shareholders  and  creditors.  To  the  extent  that  public  funds  or 
funding from the SRF are used, the application of EU State Aid and Fund Aid rules 
will  be  essential.  Therefore,  such  rules  will  continue  to  be  enforced,  making  sure 
that  the  use  of  public  funds  is  minimised  through  appropriate  burden  sharing 
measures; that aided banks are viable; and that competition in the single market is 
not distorted. 

-  Fifth,  there  is  a  need  for  greater  convergence  in  insolvency  law  and  restructuring 
proceedings  across  Member  States,  as  identified  in  the  Commission’s  Action  Plan 
on  Building  a  Capital  Markets  Union  of  30 September  20157.  Inefficiency  and 
divergence of insolvency laws make it harder to assess and manage credit risk. The 
Commission will consider bringing forward proposals enhancing legal certainty and 
encouraging  the  timely  restructuring  of  borrowers  in  financial  distress,  which  is 
particularly  relevant  for  the  success  of  strategies  to  address  the  problem  of  non-
performing  loans  (NPLs)  in  some  Member  States.  In  the  context  of  the  European 
semester the Commission will also call for increased attention from Member States 
to settle NPLs, including by upgrading insolvency regimes towards best practices.  

-  Sixth,  a  number  of  further  targeted  prudential  measures  addressing  identified 
weaknesses should be put in place. These measures include the remaining elements 
of  the  regulatory  framework  agreed  within  the  Basel  Committee,  and  in  particular 
measures to limit bank leverage, to assure stable bank funding  and to improve the 
comparability  of  risk-weighted  assets.  As  a  follow  up  to  the  outcome  of  the 
discussions within the Basel Committee, the Commission intends to make proposals 
for amendments to the CRDIV/CRR.  

7 See: http://ec.europa.eu/finance/capital-markets-union/docs/building-cmu-action-plan_en.pdf.  

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-  Finally, the adequacy of the prudential treatment of banks’ exposures to sovereign 
risk  should  be  re-considered.  Work  on  these  matters  is  currently  underway  at  the 
international  level.  In  this  context,  the  Five  Presidents’  Report  refers  to  the 
possibility  of  the  introduction  of  limits  on  banks’  exposures  to  individual 
sovereigns,  as  a  means  to  ensure  that  their  overall  sovereign  risk  is  sufficiently 
diversified. The Commission will come forward with the necessary proposals on the 
prudential  treatment  of  sovereigns,  drawing  on  quantitative  analysis  under 
preparation in the Economic and Financial Committee and the Basel Committee and 
paying particular attention to financial stability aspects.  

6. 

Conclusion 

The  Banking  Union  was  established  primarily  in  response  to  the  financial  crisis  that 
evolved into a sovereign debt crisis in particular in the euro area.  The crisis was driven 
by  the  link  between  banks  and  their  respective  national  sovereign;  and  breaking  this 
direct  link  has  therefore  become  a  key  objective  in  putting  together  the  different 
elements  of  the  Banking  Union.    While  some  components  of  the  Banking  Union  are 
already or will soon become operational, the overall construction is clearly incomplete.  
One of the missing elements, as underlined in the Five Presidents’ Report and set out in 
this Communication, is a common deposit insurance scheme.  

The  Commission  is  therefore  now  proposing  a  common  deposit  insurance  scheme  for 
the  Banking  Union,  based  on  a  reinsurance  approach  that  will  be  progressively 
converted to a full insurance scheme over a number of years. Member States should also 
begin  work to  reinforce the agreed bridge-financing arrangements  for the SRF and  on 
developing a common fiscal backstop. These steps to complete the Banking Union are 
logical in the context of efforts to deepen EMU. A common feature of these steps is that 
they  reduce  the  bank/sovereign  links  in  individual  Member  States  by  means  of  risk 
sharing among all the Member States in the Banking Union, and thereby reinforce the 
Banking  Union  in  achieving  its  key  objective.    However,  the  risk  sharing  implied  by 
steps  to  reinforce  Banking  Union  must  be  accompanied  by  risk  reducing  measures 
designed to break the bank-sovereign link more directly.   

The Commission will work to ensure that further measures to reduce risk are taken in 
parallel  with  ongoing  work  to  establish  EDIS,  including  any  necessary  regulatory 
changes.  

The  Commission  will  continue  the  dialogue  on  the  overall  package  of  EDIS  and  risk 
reduction  measures  with  the  European  Parliament,  Member  States  and  all  interested 
parties.  

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