Euro Area: Publication of Financial Sector Assessment Program Documentation-Technical Note on Financial Sector Safety Nets

This paper presents a technical note on the Euro Area’s (EA) Financial Sector Safety Nets. The build-up of loss-absorbing capacity in European banks is a major achievement, allowing EA banks to weather several major shocks. However, operational readiness still requires critical reforms to address remaining gaps and inflexibility in the financial safety net. A unified crisis management regime is needed to handle the rapid failure of potentially systemic banks. Notably, the banking union (BU) lacks a BU-wide deposit insurance system, and progress on its introduction has stalled. Additionally, arrangements for banks’ access to liquidity in resolution remain inadequate. The governance and decision-making processes of the Single Resolution Board, including the use of the Single Resolution Fund and the European Stability Mechanism Backstop, are highly complex and depend on rapid consensus among national resolution authorities or member states. Streamlining these processes is essential for effective crisis management.