European Union Banking Law

The Single Rulebook

The EU Single Rulebook is the cornerstone of European banking regulation, comprising a unified set of prudential rules applicable to all credit institutions in the European Union. The Single Rulebook aims to ensure consistent regulatory treatment across member states and to eliminate regulatory arbitrage. The principal components are the Capital Requirements Directive (CRD IV, Directive 2013/36/EU) and the Capital Requirements Regulation (CRR, Regulation 575/2013), which implement the Basel III standards in EU law. The CRR is directly applicable in all member states, while the CRD IV required transposition into national law. The Single Rulebook also includes the Bank Recovery and Resolution Directive (BRRD, Directive 2014/59/EU), which harmonises resolution tools and powers across the Union, and the Deposit Guarantee Schemes Directive (DGSD, Directive 2014/49/EU), which requires member states to maintain deposit guarantee schemes covering deposits up to €100,000 per depositor.

The Banking Union

The Banking Union, established in response to the eurozone sovereign debt crisis, represents the most significant transfer of supervisory and resolution powers to the European level. The Banking Union is founded on two pillars. The Single Supervisory Mechanism (SSM, Regulation 1024/2013) confers on the European Central Bank (ECB) direct supervisory responsibility for significant banks in the eurozone, defined as banks with total assets exceeding €30 billion or 20% of GDP or that meet other criteria indicating systemic importance. The ECB conducts comprehensive assessments, including asset quality reviews and stress tests, and applies prudential requirements directly to significant institutions. Less significant banks remain under the direct supervision of national competent authorities but are subject to the oversight and guidance of the ECB.

The Single Resolution Mechanism (SRM, Regulation 806/2014) establishes a centralised resolution framework for failing banks in the Banking Union. The Single Resolution Board (SRB) is the independent EU agency responsible for planning and executing resolution decisions. The SRM is backed by the Single Resolution Fund, financed by contributions from the banking sector and designed to reach a target level of approximately 1% of covered deposits of all authorised credit institutions by 2024. The resolution toolkit available to the SRB includes the sale of business tool, the bridge institution tool, the asset separation tool, and the bail-in tool, which requires shareholders and creditors to absorb losses before any public funds may be used.

Capital Requirements and Liquidity Standards

The CRR establishes harmonised capital requirements including the minimum Common Equity Tier 1 (CET1) ratio of 4.5%, the Tier 1 capital ratio of 6%, and the total capital ratio of 8%, supplemented by various capital buffers including the capital conservation buffer of 2.5%, the institution-specific countercyclical capital buffer, and the systemic risk buffer for systemically important institutions. The CRR also introduces the leverage ratio of 3% as a non-risk-based backstop, the liquidity coverage ratio (LCR) requiring banks to hold sufficient high-quality liquid assets to cover net cash outflows over a 30-day stress period, and the net stable funding ratio (NSFR) requiring banks to maintain a stable funding profile over a one-year horizon.

The European Banking Authority, CMU and PSD2

The European Banking Authority (EBA), established by Regulation 1093/2010 and relocated to Paris, is an independent EU authority responsible for ensuring effective and consistent prudential regulation and supervision across the European banking sector. The EBA develops binding technical standards, conducts stress tests, coordinates supervisory colleges, and monitors emerging risks and vulnerabilities. The Capital Markets Union (CMU) initiative seeks to deepen the single market for capital and reduce reliance on bank lending. The Payment Services Directive (PSD2, Directive 2015/2366) introduced the regulatory framework for open banking, requiring banks to provide third-party payment service providers with access to customer accounts subject to customer consent, and establishing the legal framework for payment initiation services and account information services.