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.
