EU Financial Market Governance
The Eurozone, comprising all its member states, is part of the Banking Union, a system designed to ensure stability, safety, and reliability in the banking sector. Established since the inception of the Eurozone, countries like Germany, France, Italy, Spain, and the original members were founding members, with Croatia joining in 2023. However, not all Eurozone countries are part of the Banking Union, and some non-Eurozone EU countries have chosen not to join.
The Banking Union's workings are governed by the European System of Financial Supervision (ESFS), established in 2011. The ESFS includes three European supervisory authorities (EBA, EIOPA, and ESMA), the European Systemic Risk Board, and national supervisory authorities. Following a comprehensive assessment of banks, including stress tests, the Banking Union took over the direct supervision of the largest banks in the Eurozone, with the European Central Bank assuming this role in November 2014.
To strengthen financial institutions and create a framework for the resolution and winding-down of insolvent banks, the Single Resolution Mechanism (SRM) was established in 2014. The SRM allows non-viable systemically relevant banks to be wound down with the involvement of the ECB, the European Commission, and member states.
In parallel to the Banking Union, the European Union (EU) aims to create a single market for capital with the Capital Markets Union. The Capital Markets Union does not appear to be directly related to the Banking Union, the ESFS, or the SRM. Instead, it seeks to improve the quality and quantity of information provided to investors, particularly retail investors, and aims to facilitate smaller companies' access to financing on capital markets.
The Capital Markets Union does not involve the European Central Bank taking over direct supervision of banks, as previously mentioned. Nor does it seem to be related to the winding-down of insolvent banks. Instead, it is part of broader efforts to align financial flows with the objectives of a greener, fairer, and more inclusive economy and society.
In this regard, the European Commission's action plan for a sustainable finance was introduced in March 2018. This action plan is an integral part of the EU's commitment to recognising the financial system's crucial role in supporting the transition to a greener, fairer, and more inclusive economy and society. The plan aims to encourage sustainable investments, improve disclosure requirements, and foster a more responsible investment culture.
In conclusion, the Banking Union, the Capital Markets Union, and sustainable finance are key components of the Eurozone's financial architecture. Each serves a distinct purpose, with the Banking Union focusing on banking sector stability, the Capital Markets Union on improving access to capital for businesses, and sustainable finance on aligning financial flows with the objectives of a greener, fairer, and more inclusive economy and society.
