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The Legal History of the Banking Union

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Abstract

This article provides a brief legal history of the Banking Union since the first steps towards a single financial market in the mid-1970s. It identifies four phases of legal and institutional evolution before the Banking Union. While reflecting the spirit of the time in the approach to market integration, each phase is defined by the equilibrium reached between the expansion of European competences and the safeguarding of national sovereignty. The transition from an equilibrium to another was made by introducing legal and institutional innovations to deepen integration. Such innovations were often at the boundaries of what could be achieved under the Treaty. The Banking Union, which comprises thus far the Single Supervisory Mechanism and the Single Resolution Mechanism, follows the same pattern. Its design is the outcome, on the one hand, of the legal possibilities offered by the Treaty and, on the other, of the tension between European competences and national sovereignty. As concluded at the end, it encapsulates many of the trends in European integration since the financial crisis erupted in 2007.

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Notes

  1. The Banking Union follows a now long line of successive institutional and legal responses to the crisis. For an overview of the sequence of responses and its potential European constitutional impact, see Chiti et al. (2012). For a related critical analysis of the implications of the responses on the legal ordering and political legitimacy in the EU, see Joerges (2015). See also the wider policy analysis relating to several areas of European integration by Laffan (2016).

  2. The original version of Art. 67 of the Treaty of Rome of 1957 provided that the liberalisation of capital movements was to take place in the transitional period of 12 years only ‘to the extent necessary to ensure the proper functioning of the common market’.

  3. This tension was already debated as early as in the 1956 Spaak Report, which provided the basis for the discussions at the Intergovernmental Conference on the Common Market and Euratom that prepared the Treaty of Rome. This report argued for the economic benefits stemming from the freedom of movement of capital. It pointed to the nationalism and protectionism underpinning capital controls among the founding Member States and to the progressive irrelevance of such controls in an integrated economic area. At the same time, it acknowledged the need to avoid that unrestrained capital flows would lead to imbalances among Member States, affect their ability to implement monetary policy or to tax capital income, and lead to insufficient or more costly financing of less-developed regions. The way forward would be to follow a flexible process, without a precise calendar or milestones, for the progressive liberalisation of capital movements, which would adapt itself to development of the common market. The Spaak Report concludes its chapter on capital movements by stating that full economic integration will not be achieved until Member States renounce to autonomous budgetary, financial and social policies, and also until they create a single currency. In the meantime, the dynamics of economic integration would have to be based on a sufficient degree of convergence of such policies. See Comité Intergouvernemental crée par la Conférence de Messine, Rapport des Chefs de Délégation aux Ministres des Affaires Étrangères, Brussels 21 April 1956, especially at pp. 92–96.

  4. See Teixeira (2010), pp. 209–251; and also the follow-up analysis in Teixeira (2011).

  5. Many of these innovations were proposed by successive ‘Comité des Sages’, which were convened by the European Commission to propose approaches to promote integration. The European Commission commissioned policy reports on the European financial market almost every 10 years. On the basis of their respective chairperson, the reports included the Segré Report: The Development of a European Capital Market, Report of a Group of experts appointed by the EEC Commission, Brussels, November 1966; the Schmidt Report: The Advantages and disadvantages of an integrated market compared with a fragmented market, Commission of the European Communities, Brussels, 1977; the Cecchini Report: Europe 1992, The overall challenge SEC(88) 524 final, Brussels, April 1988; the Lamfalussy Report: Final Report of the Committee of Wise Men on the Regulation of European Securities Markets, Brussels, February 2001; and the De Larosière Report: The High-Level Group on Financial Supervision in EU, Brussels, February 2009.

  6. See Eichengreen (2007), especially at pp. 246–251; James (2012), pp. 96 et seq.

  7. Statement from the Paris Summit (19–21 October 1972), Bulletin of the European Communities, October 1972, No. 10. Luxembourg, Office for official publications of the European Communities, pp. 14–26. On the historical and political background of the summit, see Van Middelaar (2013), pp. 113–114.

  8. Case C-8/74 Procureur du Roi v. Dassonville [1974] ECR 837; Case 120/78 Rewe Zentrale v. Bundesmonopolverwaltung für Branntwein [1979] ECR 649.

  9. The most significant Community measures in this period were the Council Directive 73/183/EEC of 28 June 1973 on the abolition of restrictions on freedom of establishment and freedom to provide services in respect of self-employed activities of banks and other financial institutions [1973] OJ L 194, pp. 1–10; and the First Banking Directive, Council Directive 77/780 of 12 December 1977 on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions [1977] OJ L 322, p. 30.

  10. This was the approach advocated early on by the Spaak Report, pp. 60–66, and also by the Segré Report in 1966. On the background to the Segré Report, see Mourlon-Druol (2016), pp. 913–927. For an analysis of the meaning of harmonisation of national laws in this period, see Stein (1964), pp. 1–40, especially at p. 7.

  11. Basel Committee on Banking Supervision, Report on the supervision of banks’ foreign establishments, September 1975, available at http://www.bis.org/publ/bcbs00a.pdf (accessed 28 April 2017).

  12. This was also the official diagnosis, as the Commission stated in 1983 that ‘financial markets are probably even less integrated now than in the 1960s, since capital movements within the Community are less free and the differences between the Member are more marked’; European Commission, Financial Integration, Communication from the Commission to the Council, COM(83) 207 final, 20 April 1983.

  13. European Commission, Completing the Internal Market, White Paper to the European Council of 28/29 June 1985 in Milan, COM(85) 310 final, 14 June 1985.

  14. For an account of the national economic preferences underpinning the Single European Act, see Moravcsik (1998), pp. 314 et seq. See similar interpretations by Van Middelaar (2007), especially at pp. 339–340.

  15. The expression ‘competition among rules’ was used in the 1987 Padoa-Schioppa Report, Efficiency, Stability and Equity, A Strategy for the Evolution of the Economic System of the European Community, April 1987, available at http://ec.europa.eu/economy_finance/emu_history/documentation/chapter12/19870410en149efficiencstabil_a.pdf (accessed 28 April 2017). For an explanation of the concept of regulatory competition applied in the field of finance, see also Padoa-Schioppa (2004), especially at pp. 40 et seq.

  16. The freedom of movement of capital was introduced by the Single European Act. The full liberalisation of capital movements, both between Member States and with third countries, was however only achieved with Council Directive 88/361/EEC of 24 June 1988 for the implementation of Art. 67 of the Treaty [1988] OJ L 178, pp. 5–18.

  17. The single passport concept took its main expression in the banking field, where a complete liberalisation of the sector was envisaged. The Second Banking Directive was the main instrument in this context: Second Council Directive 89/646/EEC of 15 December 1989 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions and amending Directive 77/780/EEC [1989] OJ L 386, pp. 1–13.

  18. On the dynamics of regulatory competition in the single market, see Majone (2009), especially at pp. 151–155.

  19. The so-called ‘general good principle’ has been developed in the case law of the Court. For its application in the context of the Second Banking Directive, see European Commission, Commission Interpretative Communication: Freedom to Provide Services and the Interest of the General Good in the Second Banking Directive, SEC(97) 1193 final, Brussels, 20 June 1997, especially at pp. 18–28.

  20. The completion of the single financial market was not achieved in practice by 1992 due to a number of shortcomings, as diagnosed by the Sutherland Report. These included failures by Member States in transposing Community legislation into national law, as well as failures in the implementation by national authorities, for instance due to different regulatory practices or different interpretations. In addition, the market participants and the consumers affected by such failures did not have access to rapid and effective means of redress. See The Internal Market After 1992: Meeting the challenge (Sutherland Report), Report to the EEC Commission by the High-Level Group on the Operation of the Internal Market presided by Peter Sutherland, of 28 October 1992, SEC(92) 2044.

  21. For a critique of the concept of European law dominated by the ‘ever closer’ integration objective, see Von Bogdandy (2016), pp. 519–538.

  22. As argued by Abdelal (2007), especially at pp. 218 et seq.

  23. Commission Communication, Financial services: Implementing the framework for financial markets: Action Plan, COM(1999) 232, 11 May 1999.

  24. On the centralisation of regulation at European level following the FSAP, see Wymeersch (2005), pp. 987–1010, at pp. 990–994.

  25. Final Report of the Committee of Wise Men on the Regulation of European Securities Markets, chaired by Alexandre Lamfalussy, available at http://ec.europa.eu/internal_market/securities/docs/lamfalussy/wisemen/final-report-wise-men_en.pdf (accessed 28 April 2017).

  26. The new supervisory or ‘Level 3’ committees included the Committee of European Securities Regulators (CESR), based in Paris and established in 2001, and later, in 2004, the Committee of European Banking Supervisors (CEBS), based in London, and the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS), based in Frankfurt. The committees were established by Commission Decisions, namely Commission Decisions 2001/527/EC, 2004/5/EC, and 2004/6/EC.

  27. ‘New governance’ was one of key strategic objectives in the programme of the Prodi Commission, which started its mandate in 1999. The approach was set out in European Commission, European Governance: a White Paper, COM(2001) 428 final, Brussels, 25 July 2001; and on the follow-up Report from the Commission on European Governance, Office for Official Publications of the European Communities, 2003. It was extensively dealt with in academic doctrine. For an overview, see Joerges, Meny and Weiler (2001); and also the Special Issue of the European Law Journal on Law and the New Approaches to Governance in Europe, vol. 8, no. 1, 2002.

  28. Padoa-Schioppa (1999), pp. 295–308, especially at pp. 303 et seq.

  29. This also corresponded to the materialisation of the so-called ‘financial trilemma’, which implies that it is not possible to pursue European financial integration and European financial stability on the basis of national competences. This is a concept coined and developed by Dirk Schoenmaker. See, in particular, Schoenmaker (2013), especially at pp. 1–17.

  30. For a detailed analysis of the legal reforms in European law after the financial crisis, see Moloney (2010), pp. 1317–1383, at pp. 1335–1355; and also Ferran (2012).

  31. See, respectively, Regulations 1093/2010 (establishing a European Banking Authority), 1094/2010 (estabilishing a European Insurance and Occupational Pensions Authority) and 1095/2010 (establishing a European Securities and Markets Authority) [2010] OJ L 331.

  32. On the Meroni doctrine applied to European agencies, see Chiti (2009), pp. 1395–1442.

  33. This applies in particular to decisions in emergency situations and for settling disagreements among national supervisors. Where a Member State considers that a decision by an ESA impinges on its fiscal responsibility, it may notify that the national supervisor does not intend to implement the decision, together with a justification. In case of continuing disagreement, the Council may be involved. See Art. 38 of all the ESA Regulations. For a detailed analysis of the powers of the new European Supervisory Authorities, see Enria and Teixeira (2011), pp. 421–468.

  34. Regulation (EU) No. 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board [2010] OJ L 331.

  35. The establishment of the ESRB represented another confirmation of the very wide scope of Art. 114 TFEU. Accordingly, the ESRB Regulation quotes in its Recital (31) Case C-217/04 United Kingdom of Great Britain and Northern Ireland v. European Parliament and Council of the European Union [2006] ECR I-03771, para. 44, where the Court ruled on the permissibility of ‘the establishment of a Community body responsible for contributing to the implementation of a process of harmonisation in situations where, in order to facilitate the uniform implementation and application of acts based on that provision, the adoption of non-binding supporting and framework measures seems appropriate’. For a critique of the gradual expansion of the scope of Art. 114 TFEU and its implications in terms of the constitutional division of powers in the EU and also for the EU’s legitimacy, see Weatherill (2011), pp. 827–864, particularly at p. 863.

  36. On the original concept of the single rulebook, see Tommaso Padoa-Schioppa, ‘How to deal with emerging pan-European financial institutions?’, speech November 2004 in The Hague, available at www.ecb.europa.eu; Padoa-Schioppa (2004), (2007).

  37. For an analysis of the components of the single rulebook, see Lefterov (2015), especially at pp. 11–19.

  38. The single rulebook approach was implemented especially in the banking sector with the so-called ‘CRD IV’, the fourth generation of capital requirement rules, which corresponds to the implementation of the global capital standards following the crisis (also known as Basel III agreement). See the Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012 [2013] OJ L 176, pp. 1–337.

  39. For an account of the Euro Area Summit, see, for example, ‘Monti’s Uprising: How Italy and Spain Defeated Merkel at EU Summit’, Spiegel Online, 29 June 2012, available at www.spiegel.de/international/europe/merkel-makes-concessions-at-eu-summit-a-841663.html (accessed 1 May 2017).

  40. Euro Area Summit Statement, 29 June 2012, available at http://www.consilium.europa.eu/en/european-council/pdf/20120629-euro-area-summit-statement-en_pdf (accessed 1 May 2017). The first paragraph of the statement reads as follows: ‘We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Art. 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding.’

  41. See, for example, the speech by Chancellor Merkel to the Bundestag on 27 June 2012 stressing that a joint liability can only occur once a joint control has been established, available at https://www.bundeskanzlerin.de/ContentArchiv/DE/Archiv17/Regierungserklaerung/2012/2012-06-27-bkin.html (accessed 1 May 2017).

  42. Herman Van Rompuy, Towards a Genuine Economic and Monetary Union, Report by President of the European Council, 26 June 2012, EUCO 120/12, available at www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131201.pdf, especially pp. 3–5 (accessed 4 February 2013). On the concept of a Banking Union, see Véron (2015). See also Goyal et al. (2013).

  43. Completing Europe’s Economic and Monetary Union, Report by Jean-Claude Juncker in close cooperation with Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz, 22 June 2015, available at http://ec.europa.eu/priorities/sites/beta-political/files/5-presidents-report_en.pdf, at pp. 10–12 (accessed 1 May 2017).

  44. For an account of the political interests of Member States at stake in the creation of the Banking Union, see De Rynck (2016), pp. 119–135, especially at pp. 129–131.

  45. Council Regulation (EU) No. 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions [2013] OJ L 287, pp. 63–89 (henceforth, ‘SSM Regulation’). It was followed in July 2014 by the regulation establishing the Single Resolution Mechanism Regulation (EU) No. 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No. 1093/2010 [2014] OJ L 225, pp. 1–90 (henceforth, ‘SRM Regulation’).

  46. Art. 127.6 TFEU reads as follows: ‘The Council, acting by means of regulations in accordance with a special legislative procedure, may unanimously, and after consulting the European Parliament and the ECB, confer specific tasks upon the ECB concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings.’ Until the establishment of the SSM, Art. 127.6 TFEU had only been used once to entrust the ECB with the task to support the functioning of the European Systemic Risk Board. Council Regulation (EU) No. 1096/2010 of 17 November 2010 conferring specific tasks upon the European Central Bank concerning the functioning of the European Systemic Risk Board [2010] OJ L 331/162.

  47. Another indication in this direction is that, in contrast with most of the other provisions of the Monetary Union, Art. 127.6 TFEU applies to all Member States, including those with a derogation, namely Denmark and the UK, in accordance with Art. 139(2) c) TFEU. All Member States have a vote in the unanimous decision to adopt a Council Regulation to entrust supervisory tasks to the ECB.

  48. For example, Art. 132.1 TFEU and Art. 34.1 of the ESCB and ECB Statute already enabled the ECB to adopt regulations to the extent necessary to implement the tasks relating to prudential supervision, by reference to Art. 127.6 TFEU and Art. 25.2 of the Statute, respectively.

  49. The attribution of banking supervision competences to the ECB has been originally discussed in the drafting of the Delors Report and in the Intergovernmental Conference leading to the Maastricht Treaty. The text of Art. 127.6 TFEU represented a compromise between acknowledging the concerns at the time that such competences could lead to moral hazard and conflict of interests in the conduct of monetary policy, while retaining the possibility that a supervisory role could be given to the ECB in light of developments in the financial system. For the historical account, see James (2012), pp. 313–317.

  50. In accordance with Art. 26.1 of the SSM Regulation, the Supervisory Board comprises a Chair, Vice-Chair, four ECB representatives, and one representative of each national supervisor, which can be accompanied by a central bank representative. The national supervisors of the non-euro area Member States, which enter into a close cooperation with the ECB, have full membership and voting rights in the Supervisory Board without any distinction from the euro area members.

  51. The strengthening of EU economic governance also involved the introduction of reverse voting procedures at the level of the Council with regard to Commission recommendations. The aim, in this case, was to limit the role of the Council and achieve a stricter and more automatic enforcement of rules, particularly of the imposition of sanctions under the Excessive Deficit Procedure. See, for example, Art. 6(2), Regulation (EU) No. 1173/2011 of the European Parliament and of the Council of 16 November 2011 on the effective enforcement of budgetary surveillance in the euro area [2011] OJ L 306, pp. 1–7.

  52. See Art. 26(8) of the SSM Regulation. If the Governing Council objects to a draft supervisory decision proposed by the Supervisory Board, a mediation panel will be convened to resolve any differences of views, in accordance with Art. 25(5) of the SSM Regulation.

  53. In line with Art. 263 TFEU. In this context, it may be questioned whether the judicial review of supervisory acts could be undertaken by a specialised court, as foreseen under Art. 257 TFEU. Such a specialised court could be justified due to the technical specificity of banking supervision, the potential volume of supervisory acts, and the need for a timely review of supervisory decisions in order for it to remain effective. The SSM Regulation partly addressed such concerns by introducing an internal administrative board of review of the ECB (ABOR), which provides an appeal mechanism leading to a new supervisory decision within a relatively short period of time. In this context, the General Court considered that a supervisory decision in conformity with an Opinion of the ABOR ‘is an extension of that opinion and the explanations contained therein may be taken into account for the purpose of determining whether the contested decision contains a sufficient statement of reasons.’ See Judgment of 16 May 2017, Case T-122/15 Landeskreditbank Baden-Württemberg—Förderbank v. European Central Bank, EU:T:2017:337, para. 127. For an overview of the functioning of this board thus far, see Brescia Morra, Smits and Magliari (2017), in this issue. Similarly, the SRM Regulation introduced an Appeal Panel for bank resolution decisions of the SRB. See Art. 45 SRM Regulation.

  54. The ECB was entrusted with the large part of the supervisory competences provided by Union law to national supervisors as competent authorities. According to Art. 4(1) of the SSM Regulation, this includes, among others, the authorisation of banks and the withdrawal of their license, ensuring compliance of credit institutions with prudential requirements, supervisory review, supervision on a consolidated basis, supervision of branches from credit institutions authorised in the EU, supplementary supervision of a financial conglomerate, early intervention measures, limits to compensation of managers, administrative sanctions, and imposing structural changes in banks. For the purposes of the application of the Union’s banking law, the ECB became the competent authority for banking supervision in each euro area Member State, with the corresponding powers, in line with Art. 9(1) of the SSM Regulation. The supervisory tasks not conferred on the ECB remained with national authorities, such as the supervision of branches from third-countries or anti-money laundering, as listed in Recital 28 of the SSM Regulation. The ECB was, in addition, entrusted with parallel competences to national authorities regarding macro-prudential tasks, under Art. 5 of the SSM Regulation.

  55. At the same time, there were political preferences for preserving the national supervision of purely domestic institutions, see Véron (2014). For an account of the policy dynamics in the transfer of banking supervision competences, see Epstein and Rhodes (2016), pp. 90–103.

  56. It also included the three largest banks in each Member State and also the banks receiving direct or indirect assistance from the EFSF/ESM. The ECB can add more banks to its jurisdiction on the basis of their cross-border relevance or domestic significance, in this latter case at the request of a national supervisor. See Art. 6(4) of the SSM Regulation.

  57. See Art. 6(3) of the SSM Regulation.

  58. In a recent judgment, the General Court concluded further that the ECB has exclusive competence over the whole banking system and that the national authorities assist the ECB also with regard to ‘less significant’ institutions. In particular, the Court states that ‘the Council has delegated to the ECB exclusive competence in respect of the tasks laid down in Article 4(1) of the Basic [SSM] Regulation and that the sole purpose of Article 6 of that same regulation is to enable decentralised implementation under the SSM of that competence by the national authorities, under the control of the ECB, in respect of the less significant entities and in respect of the tasks listed in Article 4(1)(b) and (d) to (i) of the Basic [SSM] Regulation’. See Judgment of 16 May 2017, Case T-122/15 Landeskreditbank Baden-Württemberg—Förderbank v. European Central Bank, EU:T:2017:337, para. 63.

  59. The division of tasks within the SRM is largely based on the distinction between ‘significant’ and ‘less significant’ banks. The SRB is responsible for the drawing up of the resolution plans and adopting all decisions relating to resolution of ‘significant’ entities, while the national resolution authorities are responsible for the ‘less significant’ entities. This also implies that the perimeter of the competences of the ECB/SSM and the SRB largely overlap. However, they do not fully coincide since, in addition to the entities directly supervised by the ECB/SSM, the SRB is also responsible for all other cross-border groups in the jurisdiction of the Banking Union. See Art. 7(2) SRM Regulation.

  60. On the provisions for the exercise of macro-prudential tasks, see Art. 6(5) of the SSM Regulation. Guido Ferrarini argues that the SSM still represents a semi-strong form of centralisation since it relies on supervisory cooperation between the ECB and national supervisors. This may give rise to agency problems, such as non-cooperation by local supervisors. See Ferrarini (2015), pp. 513–537, especially at pp. 524–525.

  61. On the provisions for the exercise of macro-prudential tasks, see Art. 6(5) of the SSM Regulation.

  62. See Art. 7(7) SSM Regulation.

  63. See Art. 47(1), (2) and (3) of the SRM Regulation.

  64. In many countries, banking supervision was a function close to or integrated in finance ministries. See Quintyn et al. (2007), pp. 34 et seq. The Basel Core Principles on Effective Banking Supervision, the main global institutional standards, only required the ‘operational independence’ of supervision, in accordance with Principle 2. See Basel Committee on Banking Supervision, ‘Core Principles for Effective Banking Supervision’, September 2012, available at http://www.bis.org/publ/bcbs230.pdf (accessed 12 October 2016).

  65. See also the related findings by Dirk Schoenmaker and Nicolas Véron, who point out that European banking supervision is independent, more intrusive than previous national regimes, less vulnerable to regulatory capture and political intervention, and also that it appears to be broadly fair among banks and countries. See Schoenmaker and Véron (2016), particularly at pp. 25 et seq.

  66. The accountability framework of the SSM and SRM are broadly similar and are provided, respectively, under Art. 20 of the SSM Regulation, and Art. 45 of the SRM Regulation.

  67. Niamh Moloney also alerts to this risk of disconnect between the Banking Union and the single financial market. See Moloney (2014), pp. 1609–1670, at pp. 1661–1669.

  68. ‘Close cooperation’ is regulated in Art. 7 SSM Regulation and Art. 4 SRM Regulation.

  69. The FSB first put forward the objectives of a resolution regime. First, it should make feasible the resolution of any financial institution, without making taxpayers exposed to losses from solvency support. Second, it should protect vital economic functions. Third, it should include mechanisms to enable shareholders, unsecured and uninsured creditors to absorb losses in their order of seniority. This ‘bail-in’ of shareholders and creditors would replace the need for bail-outs. See FSB Report, ‘Reducing the moral hazard posed by systemically important financial institutions’. The report was endorsed by the G-20 Summit in Seoul, November 2010, available at www.financialstabilityboard.org/publications/r_101111a.pdf. These principles were then turned into global regulatory standards in the 2011 FSB’s ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’ to be implemented in all jurisdictions. FSB, ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’, available at www.financialstabilityboard.org/publications/r_111104cc.pdf (accessed 1 May 2017). The standards were endorsed by the G20 Summit in Cannes, November 2011.

  70. In the US, the Dodd-Frank Act established a resolution framework for systemic financial institutions, with the Federal Deposit Insurance Corporation (FDIC) as the resolution authority, available at www.gpo.gov/fdsys/pkg/BILLS-111hr4173enr/pdf/BILLS-111hr4173enr.pdf (accessed 1 May 2017).

  71. Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No. 1093/2010 and (EU) No. 648/2012, of the European Parliament and of the Council [2014] OJ L 173, pp. 190–348.

  72. For an overview, see Zavvos and Kaltsouni (2015).

  73. Case C-217/04 United Kingdom v. Parliament and Council [2006] ECR I-3771, para. 42; and Case C-491/01 British American Tobacco (Investments) and Imperial Tobacco [2002] ECR I-11453, para. 60. Furthermore, in the ‘Smoke Flavourings’ case, the Court considered that Art. 114 of the Treaty also confers discretion to the legislature as to the most appropriate harmonization technique, see Case C-66/04 United Kingdom v. Parliament and Council [2005] ECR I-10553, para. 41.

  74. There are mutual obligations of consultation and cooperation between the SSM and the SRB. See, for example, Arts. 8 (assessment of resolvability), 10 (setting of MREL), 11 (provision of supervisory information), 27 (mutual cooperation), and 39 (ECB representative in the SRB).

  75. As explained under the Recitals 11, 12, and 21 of the SRM Regulation.

  76. See Wojcik (2016), pp. 91–138, at pp. 116 et seq., who argues that the principle of no creditor worse off is fundamental for safeguarding property rights, and points to the legal and practical difficulties of operationalising such principle. The Court clarified that the burden-sharing requirements under state aid rules—albeit not specifically under the BRRD and SRM Regulation—could not be considered as infringing property rights. Judgment of the Court (Grand Chamber) of 19 July 2016, Case C-526/14 Kotnik and Others, ECLI:EU:C:2016:570.

  77. At the limit, the fiscal sovereignty of Member States may be affected if they provide public support in the situations allowed by the BRRD and SRM Regulation. For example, see the government financial stabilization tools under Art. 56 BRRD. For an analysis, see Gortsos (2016).

  78. The compliance of the SRB powers with the Meroni doctrine is supported by the Short Selling judgement. The Court concluded that the conditions set for the exercise of powers of the European Securities and Markets Authority (ESMA) regarding short-selling satisfy the Meroni requirements. In particular, the powers available to ESMA were found to be precisely delineated and amenable to judicial review in the light of the objectives established by the authority which delegated those powers to it. The Court also argued that the high degree of professional expertise in the pursuit of the objective of financial stability within the Union was also a relevant factor for the attribution of powers to ESMA. See Judgment of the Court of Justice (Grand Chamber) of 22 January 2014, Case C-270/12 United Kingdom v. European Parliament and Council (Short selling), EU:C:2014:18. For a more extensive analysis, and a positive answer under the Meroni doctrine, on whether the bank resolution powers could be entrusted to the SRB, see Moloney (2014), pp. 1609–1670, at pp. 1660–1661; and also Lintner (2017), in this issue.

  79. See, in particular, Recital 24 of the SRM Regulation. The decision-making powers of the SRB are further constrained by the criteria and conditions that the Commission may set through delegated acts. In this context, the EBA has an advisory role towards the Commission in the consistent application of the BRRD and in the convergence of resolution practices. See Arts. 5 and 93 of the SRM Regulation.

  80. The convoluted decision-making process for bank resolution may be summarised as follows. When the conditions for resolution are met, the SRB should adopt a resolution scheme. However, the scheme only enters into force if there is no objection within 24 hours by the Commission and the Council. First, the Commission has 24 hours to endorse or object to the discretionary aspects of the resolution scheme. Second, the Commission has 12 hours to propose to the Council to object to the resolution scheme on the basis that the public interest criterion for resolution—instead of winding-up—is not fulfilled. The Commission can also propose to the Council to approve or object to a modification to the amount of the SRF provided for in the scheme. The SRB then has 8 hours to modify the scheme accordingly. See Art. 18(7) of the SRM Regulation.

  81. The SRB could also request extraordinary ex post contributions from banks when the financial means of the SRF were insufficient. It could also borrow from other resolution arrangements in the EU, financial institutions, or entities such as the ESM. The SRF should by 2024 reach a target level of financial means amounting to 1% of the covered deposits of all banks in the Banking Union (around 55 billion euro). See Arts. 67–73 of the SRM Regulation.

  82. See Art. 6(6) of the SRM Regulation.

  83. At the limit, Member States or the ESM may provide bridge financing to the SRF against repayment by the banking sector. In the case that a public backstop is required to ensure financing of resolution when the fund has no financial means. See Recital 13 of the Agreement on the Transfer and Mutualisation of Contributions to the Single Resolution Fund, Council of the European Union, Brussels 14 May 2014, available at register.consilium.europa.eu/doc/srv?l = EN&f = ST %208457%202014%20INIT (accessed 1 May 2017). The SRM Regulation explicitly forbids any expenses to be borne by the budgets of the Union or Member States, in accordance with Art. 73(3) of the SRM Regulation.

  84. See Art. 27(7) of the SRM Regulation.

  85. The use of the SRF is also subject to ‘fund aid’ control by the Commission. This is a new power of the Commission introduced by Art. 19 of the SRM Regulation. While the use of the SRF would not qualify as state aid as such, since no public funds would be involved, the SRM Regulation ensured that the Commission would be able to control—on the basis of the same criteria as for state aid—whether the use of the SRF could be incompatible with the internal market by benefitting an undertaking and hence distorting competition. The use of the fund has to be notified to the Commission, which can then take a decision imposing conditions or against the use of the SRF. This decision can, in turn, be pre-empted by the Council if, upon application by a Member State, it votes by unanimity that the use of the SRF is compatible with the internal market.

  86. See Art. 52(2) of the SRM Regulation.

  87. The SRM Regulation justified the SRF as part of the harmonisation process, since a centralised system of resolution would require a single funding system. This, in turn, safeguards financial stability throughout the single market, which is a condition for market integration. See, in particular, Recital (19) of the SRM Regulation.

  88. See Recital (7) of the Agreement on the Transfer and Mutualisation of Contributions to the Single Resolution Fund, Brussels, 14 May 2014.

  89. The banking law of the Union comprises both directly applicable Union regulations and Union directives, which require national transposition measures to have direct legal effect. In this context, the ECB may be required to enforce, at the limit, inconsistent national transposition of directives due to the prohibition of reverse vertical direct effect of directives, as confirmed by the Court originally in Marshall, Case 152/84, EU:C:1986:84, para. 48, and Faccini Dori, Case C-91/92, EU:C:1994:292, para. 20. This implies that the SSM, including the ECB and national authorities, will apply a body of law with mixed nature including both directly applicable Union law and national law transposing Union directives. Art. 4(3) of the SSM Regulation provides that the ECB should apply Union law, including the national law transposing directives and the national legislation exercising options provided in European regulations. It also recalls that the ECB should comply with the Commission‘s delegated and implementing acts under Arts. 290 and 291 TFEU; and it subjects the ECB to the EBA‘s single supervisory handbook. The SRB is subject to a similar provision under Art. 5 of the SRM Regulation.

  90. The Banking Union will however remain subject to two different judicial jurisdictions: the Court of Justice for decisions taken by the ECB/SSM and the SRB regarding ‘significant’ banks and national courts for decisions taken by national authorities regarding ‘less significant’ banks.

  91. Art. 4(3) of the SSM Regulation.

  92. As also argued by Ferran (2016), pp. 285–317.

  93. The double-voting system applies to the most relevant decisions of the EBA. It includes the decisions regarding the adoption of draft standards and guidelines and recommendations, actions in emergency situations, and those proposed by an independent panel to the Board of Supervisors concerning breaches of Union law and the settlement of disagreements between supervisors. In these cases, the decisions should be adopted either by qualified majority or simple majority by the Board of Supervisors, but including both a simple majority of its members from competent authorities of participating Member States and a simple majority of its members from competent authorities of non-participating Member States. See Art. 1(7) of Regulation (EU) No. 1022/2013 of the European Parliament and of the Council of 22 October 2013 amending Regulation (EU) No. 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards the conferral of specific tasks on the European Central Bank pursuant to Council Regulation (EU) No. 1024/2013 [2013] OJ L 287, pp. 5–14.

  94. For a critical analysis, see Ferrarini (2015), pp. 513–537.

  95. Art. 1 of the SSM Regulation and Art. 6 of the SRM Regulation contain the obligation of non-discrimination against Member States not participating in the Banking Union, and of protecting the unity and integrity of the single market.

  96. See the proposed set of arrangements regarding the relationship between the UK and the EU before the referendum, which included safeguards on the Banking Union, Conclusions of the European Council meeting of 18 and 19 February, Brussels, 19 February 2016, EUCO 1/16. See Ferran (2014). On the impact of the Eurozone on the rest of the EU, see Dashwood (2016), pp. 3–9.

  97. As also concluded by Zeitlin (2016), pp. 1072–1094.

  98. The Banking Union remains, nonetheless, a complex institutional system with juxtaposed European, intergovernmental, and national laws, a multi-layered single rulebook, as well as comprising the action of both European and national authorities. Over time, the sequence of banking supervision and resolution decisions will necessarily increase uniformity and simplify the system. On the risks of this construction for the single market, see Moloney (2014), pp. 1609–1670, especially at pp. 1661–1669.

  99. For an overview of these constitutional trends, see Chiti et al. (2012).

  100. Harold James highlights, with historical examples, the risks of lack of credibility and political disintegration if supranational powers are not perceived to be exercised with independence. See James (2010), p. 15.

  101. See the analysis of Renaud Dehousse, who also emphasises in this new stage of European integration, rather than the rise in intergovernmentalism, the reinforcement of the role of supranational actors, like the Commission and the ECB, in the form of new powers and strengthened autonomy. According to this analysis, it is, however, hard to reconcile such developments with attempts at ‘politicizing’ EU public policy. See Dehousse (2015).

  102. The relationship between the ECB/SSM and the European Parliament is regulated in an interinstitutional agreement, which provides the Parliament with specific instruments to request information. See Interinstitutional Agreement between the European Parliament and the ECB on the practical modalities of the exercise of democratic accountability and oversight over the exercise of the tasks conferred on the ECB within the framework of the Single Supervisory Mechanism [2013] OJ L 320, p. 2. The involvement of national parliaments also bears some similarities with economic governance arrangements where, for example, the Treaty on Stability, Coordination and Governance in EMU provides under Art. 13 that the European Parliament will organise with national parliaments a conference to discuss budgetary issues.

  103. See Art. 20 of the SSM Regulation, and Art. 45 of the SRM Regulation. The relationship between the ECB/SSM and the Council is regulated in a Memorandum of Understanding. See the Memorandum of Understanding between the Council of the European Union and the ECB on the cooperation on procedures related to the Single Supervisory Mechanism (SSM) 11 December 2013, available at http://www.ecb.europa.eu/ecb/legal/pdf/mou_between_eucouncil_ecb.pdf (accessed 1 May 2017).

  104. The accountability framework of the Banking Union is, therefore, based on a system of ‘resistance-norms’, according to which the provision of information by supranational bodies raises the political costs of policy actions and contains such actions within a democratic framework. On the logic of accountability related to a system of ‘resistance-norms’ providing soft limits to public administration, see Lindseth (2010), p. 22.

  105. For example, 17 of the 27 Member States participate in the euro area, in the EFSF and in the ESM Treaty, but 23 Member States have agreed the Euro Plus Pact, and 25 Member States have signed the TSCG.

  106. In November 2015, the Commission put forward a proposal for a European Deposit Insurance Scheme, which is under discussion at the time of writing. See European Commission, Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 806/2014 in order to establish a European Deposit Insurance Scheme, COM/2015/0586 final, 2015/0270 (COD), 24 November 2015. It was presented as one of the measures for completing the Banking Union, together with the implementation of the BRRD, a common fiscal backstop for the Single Resolution Fund, and further risk reduction in the banking sector, notably with the introduction of limits to banks’ exposures to sovereigns. See European Commission, 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’, COM/2015/0587 final, 24 November 2015.

  107. See this argument elaborated in Chiti and Teixeira (2013), pp. 683–708, especially at pp. 690 et seq.

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  1. European Central Bank, Frankfurt am Main, Germany

    Pedro Gustavo Teixeira

  2. Institute for Law and Finance, Goethe-Universität, Frankfurt am Main, Germany

    Pedro Gustavo Teixeira

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Correspondence to Pedro Gustavo Teixeira.

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The views expressed are those of the author and do not necessarily represent those of his institution. Comments on an earlier draft from an anonymous reviewer are gratefully acknowledged as well as from participants at the workshop organised by the European University Institute on 11 October 2016 on ‘The European Banking Union and Its Instruments—Experience from the First Years of an Interplay with National Banking Supervision and Resolution’.

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Teixeira, P.G. The Legal History of the Banking Union. Eur Bus Org Law Rev 18, 535–565 (2017). https://doi.org/10.1007/s40804-017-0074-2

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