Banking union involves the transfer of authority over banking policy from the national to the European level. It is a major step in the economic and monetary integration of the European Union, and aims to end large taxpayer-funded bailouts and national policies that protect domestic banks at the expense of financial stability. This paper describes the rationale for banking union, four key pieces of legislation that constitute its legal foundation and two mechanism that form its key pillars. The ultimate test of whether banking union has worked, the paper concludes, is whether it will succeed in reversing the fragmentation in Europe’s financial system and breaking the vicious circle between banks and sovereigns.

  • Miranda Xafa

    Miranda Xafa is a CIGI Senior Fellow. She is also chief executive officer of E.F. Consulting, an Athens-based advisory firm focusing on euro zone economic and financial issues. At CIGI, Miranda focuses on sovereign debt crises and drawing lessons from the Greek debt restructuring for future debt crises. From 2004 to 2009, she served as a member of the Executive Board of the International Monetary Fund in Washington.

CIGI Papers present in-depth analysis and discussion on governance-related subjects. They include policy papers that present CIGI experts' positions or contributions to policy debates, and background papers that contain research findings, insights and data that contribute to the development of policy positions.