site.btaBanking Union Still Awaits Final Pillar as EU Pushes Deeper Integration

More than a decade after its creation, the Banking Union remains one of the European Union’s main projects for deeper economic and financial integration.

The Banking Union was created in response to the 2008 financial crisis and the eurozone debt crisis that followed, to break the link between banking problems and public finances and to bolster confidence in the financial system.

It has three pillars: common banking supervision, a common mechanism for resolving troubled banks, and a European deposit insurance scheme. The first two are fully in place, while the third remains under legislative and political debate.

The idea of a Banking Union took shape in 2012, when European leaders moved to build a more integrated framework for banking supervision and crisis management. It became clear that problems in the banking sector could quickly spill over into national budgets and deepen financial instability.

In response, the European Commission put forward legislative proposals for common banking supervision and a stricter regulatory framework. The initiative quickly became a key part of the EU’s effort to strengthen financial stability.

In 2013, the European Parliament examined legislation to set up a single banking supervisor. In a position adopted on May 22, 2013, MEPs said shifting supervisory powers to the European level had to be matched by stronger institutional accountability. The transfer of powers from the national to the European level must go hand in hand with the creation of accountability at EU level, the Parliament said.

The first pillar of the Banking Union, the Single Supervisory Mechanism (SSM), began operating in November 2014, when the European Central Bank took direct supervision of the largest and systemically important banks in the eurozone and participating countries.

When the legislation was adopted, the European Parliament secured key transparency concessions. The transfer of supervisory powers to the ECB is not a blank cheque. It must be accompanied by democratic oversight, so citizens know how decisions affecting their savings are made, Parliament’s rapporteurs said.

National supervisory authorities keep day-to-day control over smaller banks, but work within a common European system under the ECB’s coordination. The aim is to ensure uniform application of capital requirements, risk management rules and supervisory checks. The European Parliament can also investigate serious failures by the supervisory authority, while individual MEPs can submit written questions and receive a prompt reply.

More than 110 significant banking groups are now under the ECB’s direct supervision, accounting for most banking assets in the eurozone. After the legislation was adopted, the European Central Bank said the mechanism is an important step towards restoring confidence in Europe’s financial system.

The second pillar, the Single Resolution Mechanism (SRM), sets out how a failing bank or one in severe distress is handled. Its main goal is to ensure troubled banks are restructured or wound down in a predictable way, while protecting depositors and avoiding the use of public money.

The SRM regulation was adopted in 2014 after talks between the European Parliament and EU member states in the Council of the European Union, and the mechanism became fully operational on January 1, 2016.

The SRM includes the Single Resolution Board and the Single Resolution Fund, financed by contributions from the banking sector. One of the best-known examples of the framework in action was the 2017 resolution of Banco Popular, when the troubled Spanish bank was sold to Banco Santander to avoid broader financial risk to the system.

Alongside the three pillars, the EU developed the single rulebook for the banking sector, covering capital requirements, bank recovery and resolution rules, and standards for depositor protection.

The reforms are meant to make the banking system better capitalized and more resilient to economic shocks. A core principle of the new framework is that shareholders and investors bear initial losses before public funds are used.

In recent years, European institutions have also moved to simplify supervisory procedures. The European Central Bank launched a banking supervision reform aimed at cutting the administrative burden and sharpening its focus on core risks.

The reform was set out in the report Streamlining Supervision, Safeguarding Resilience, published in December 2025. In a blog post, Claudia Buch, chair of the ECB’s Supervisory Board, and board member Sharon Donnery said the initiative was not deregulation, but aimed at more efficient supervision that ensures resilient banks and a stable financial system.

The planned measures include a simplification of the annual Supervisory Review and Evaluation Process (SREP) and faster fit-and-proper assessments for members of banks’ management bodies. The average time for those procedures fell from 109 days in 2023 to 97 days in 2024.

The plans also include a faster approval process for low-risk share buybacks by banks and a quicker process for approving internal risk management models used by many of the significant banks supervised by the ECB.

The third pillar of the Banking Union is the European Deposit Insurance Scheme (EDIS). The European Commission presented its legislative proposal on November 24, 2015, and it has remained blocked in the European Parliament ever since.

EDIS is the missing piece meant to turn national savings protection into a common European system. At present, deposits of up to EUR 100,000 are guaranteed by national funds if a bank fails. The main economic risk is a vicious circle in which a large banking crisis drains a national fund and forces the State to replenish it, putting public finances and currency stability at risk.

The idea is for national deposit guarantee funds to be backed by a common European mechanism that would provide more even protection for depositors across the Banking Union. When presenting the initiative, the Commission said such a scheme will strengthen the Banking Union and help further reduce the link between banks and national budgets.

The project remains politically blocked because some countries fear their stable funds would be used to cover deficits in countries with higher shares of bad loans. That is why a phased introduction has been proposed, from shared liquidity in the form of loans to full joint funding. For Bulgarian depositors, completing EDIS would mean their savings rest on the financial strength of the entire European Union, not only on the capacity of the local fund.

Bulgaria joined the Banking Union on October 1, 2020, through a close cooperation arrangement between the Bulgarian National Bank and the European Central Bank. From that date, the ECB took direct supervision of the country’s significant banks.

Participation in the Banking Union is seen as an important step towards deeper financial integration and preparation for eurozone entry, a process that ended with Bulgaria’s full membership on January 1 this year. It brings common European supervisory standards, regular stress tests and participation in the shared bank resolution framework.

In recent years, European institutions have put growing emphasis on the need to complete the Banking Union. European Central Bank President Christine Lagarde has repeatedly said that completing the Banking Union remains key to financial stability and to deeper integration of European financial markets.

Representatives of the European Commission and the European Parliament have voiced similar views, saying a common European deposit guarantee could strengthen confidence in the banking system and reduce fragmentation in financial markets.

More than 10 years after its launch, the Banking Union is already operating as a common framework for banking supervision and crisis management. Completing its third pillar, the common European deposit guarantee, remains the next major step.

Through its EU Lex BG section, BTA continues to present coverage of the transposition and implementation of European legislation in Bulgaria.