July 22, 2019

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Banking Law in the European Union

The framework for European Union banking law aims to “regularize” the banking and financial services markets. Policies, made in accordance with the European Union’s Financial Services Action Plan, attempt to uphold mutual recognition amongst the member states of the EU by enabling banks and financial services providers in one EU member state to operate all over the European Union.

The Second Banking Directive, which came into effect in 1993, aims to uphold the principle of mutual recognition and the idea of a single banking passport. The principle of mutual recognition entails recognition by each member state of its fellow member states’ national regulatory authorities. The idea of a single banking passport champions the removal of barriers so that a bank licensed to operate in one member state is likewise allowed to operate in the other member states.

Monetary policy in the European Union is implemented by the European Central Bank. The prime aim of the European Central Bank is to ensure the equilibrium and stability of the Euro.


The Eurosystem currently functions as the monetary authority governing those European Union member states that have opted to adopt the Euro as their currency. The Eurosystem aims to regulate the strength of the Euro as well as to foster cooperation between the Eurosystem and the remaining European Union member states. The Eurosystem also safeguards foreign reserves.

European System of Central Banks

The European System of Central Banks is distinct from the Eurosystem and consists of the European Central Bank and the central banks of all the European Union member states.


European Banking Authority


The European Banking Authority performs a regulatory role in the European Union. It conducts due diligence and imposes stress tests on the banks of member states with the aim of exposing problem areas in the capital structures of the banks.

The European Banking Authority has the overarching power to oversee the member states’ banks and can quash the decisions of national regulators. It acts as a watchdog and tries to censure anti-competitive practices. It also ensures that banks in all jurisdictions are subjected to the uniform standards of regulation.

The Common Reporting framework is implemented by the European Banking Authority for the purposes of Capital Requirements Directive reporting. The member states that have adopted this framework are required to submit their own COREP reports, which measure market risk, credit risk, operational risk, own fund and capital adequacy ratios.


Many of the European Union Directives aim to consolidate banking regulations and ensure a level playing field for all banks and financial institutions.

Directive 2006/48, amended by Directive 2011/89, creates an overarching framework of regulation requiring participating member states to recognize each other’s watchdog systems. For instance, a single bank licence once obtained is recognized throughout the European Union and removes barriers to banks in one member state from opening branches in other member states.

Directive 2006/48 allows for credit institutions to be supervised on a centralized basis.  It also prevents member states from become overexposed to single credit institutions.

Directive 2007/64 regulates cross-border payment systems and requires that such payment service providers adhere to certain standards.

Other systems that have come under European Union regulation include deposit-guarantee schemes, electronic money and the publication of yearly accounts.