The European banking union refers to the transfer of responsibility for banking policy from the member state-level to the union-wide level in several EU member states, initiated in 2012 as a response to the 2009 Eurozone crisis. The motivation for the banking union was the fragility of numerous banks in the Eurozone, and the identification of a vicious circle between credit conditions for these banks and the sovereign credit of their respective home countries ("bank-sovereign vicious circle"). In several countries, private debts arising from a property bubble were transferred to the respective sovereign as a result of banking system bailouts and government responses to slowing economies post-bubble. Conversely, weakness in sovereign credit resulted in deterioration of the balance sheet position of the banking sector, not least because of high domestic sovereign exposures of the banks.
As of mid-2020, the Banking union of the European Union largely consists of two main initiatives, European Banking Supervision and the Single Resolution Mechanism, which are based upon the EU's "single rulebook" or common financial regulatory framework.[1] The SSM took up its authority on 4 November 2014, and the SRM entered into full force on 1 January 2015.[2] Most accounts of banking union view it as incomplete in the absence of a European deposit insurance. The European Commission made a legislative proposal for a Deposit Insurance Scheme in November 2015,[3] but it has not been adopted by the EU co-legislators.
Until October 2020, the geographical scope of the European Banking Union was identical to that of the euro area. Other non-euro member states may join the European Banking Union under a procedure known as close cooperation. Bulgaria and Croatia initiated requests for close cooperation, in July 2018 and May 2019 respectively. Following a formal approval of these requests in June 2020, the European Central Bank started supervising the larger Bulgarian and Croatian banks on 1 October 2020.[4]
In December 2023 Italy's lower house of parliament voted against reforming the euro zone bailout fund ESM preventing parliament from approving the same reform text in the six months to come,[5][6] and blocking implementation of the Single Resolution Mechanism.[citation needed]