I. Legal Basis and Constitutional Architecture

1. Legal Basis:

Article 114 TFEU – internal market harmonisation. Basis for:

• Single Rulebook – CRR 575/2013, CRD IV/V, BRRD 2014/59/EU, DGSD 2014/49/EU
• Single Resolution Mechanism Regulation – SRMR 806/2014

Article 127(6) TFEU – enables Council, acting unanimously by special legislative procedure, to confer specific tasks concerning prudential supervision on ECB. Basis for Single Supervisory Mechanism Regulation – SSMR 1024/2013.

This construction is constitutionally fragile:

"Designing the SSM has been an exercise in sophisticated legal gymnastics to fit within the existing Treaty framework"

Tensions:

• Art 127(6) says "specific tasks", not general supervision. Does it allow exclusive supervision?
• Separation of monetary policy and supervision inside ECB required.
• Meroni doctrine: Can you delegate discretionary resolution powers to an agency like Single Resolution Board (SRB)? ECJ answered in ESMA Short-Selling C-270/12 – yes, if criteria strictly circumscribed.

2. The Four Pillars as of 2026:

Pillar 0 – Single Rulebook: Directly applicable CRR + transposed directives. EBA issues binding technical standards.

Pillar 1 – Single Supervisory Mechanism (SSM):
Agreement March 2013, operational November 2014

• ECB directly supervises ∼110 Significant Institutions (SI) based on size >€30bn, cross-border activity, economic importance, public support.
• National Competent Authorities (NCAs) supervise Less Significant Institutions (LSIs) under ECB oversight and instructions. ECB can take over any LSI at any time.
• Criteria set in SSMR and SSM Framework Regulation 468/2014

Pillar 2 – Single Resolution Mechanism (SRM):
Agreement March 2014, SRB operational Jan 2015, fully operational Jan 2016

• SRB decides if a bank in Banking Union fails, whether public interest justifies resolution, adopts resolution scheme.
• National Resolution Authorities (NRAs) execute.
• Single Resolution Fund (SRF) – €78bn target, mutualised via Intergovernmental Agreement. Financed by bank levies.
• First case: Banco Popular – 6 June 2017 SRB adopted first resolution decision. Then non-resolution cases: Banca Popolare di Vicenza / Veneto Banca (2017), ABLV Bank (2018), PNB Banka (2019) sent to national insolvency.

Pillar 3 – Incomplete: European Deposit Insurance Scheme (EDIS):
Proposed 2015. ECON adopted EDIS I proposal April 2024 – three-phase model. Not adopted. CMDI reform (Commission proposal April 2023, provisional agreement 25 June 2025) allows more flexible use of DGS funds in resolution subject to least-cost test.

II. Case Law – How Courts Shaped Banking Union

The ECON study 10 years of Banking Union's case-law (Lamandini & Ramos Muñoz, 2024) divides case law in three blocks: supervision, resolution, sanctions.

A. SUPERVISION – Constitutional Legitimacy & Vertical Allocation

1. Landeskreditbank Baden-Württemberg – Förderbank v ECB – THE constitutional case

• T-122/15 (GC 16 May 2017) – C-450/17 P (CJEU 8 May 2019)
• Facts: L-Bank, German state promotional bank, €70bn assets, challenged ECB decision classifying it as Significant.
• Ruling: GC described ECB competence as exclusive for both SI and LSI. NCA supervision of LSIs is decentralized exercise of ECB competence, not autonomous national competence.
• CJEU confirmed: SSMR does not manifestly exceed Art 127(6). ECB can directly apply national law transposing directives.
• Effect: Ended German argument that LSIs remain national.

2. German Federal Constitutional Court – 2 BvR 1685/14, 2 BvR 2631/14 – SSM/SRM – 30 July 2019

• 6 constitutional complaints: SSMR/SRMR exceed EU competences (ultra vires), violate democracy and constitutional identity.
• BVerfG holding: The EU did not exceed competences conferred. Neither SSM Regulation nor SRM Regulation encroach on constitutional identity of Basic Law. BUT only if interpreted strictly: supervision must remain limited, ECB supervised by Council, no fiscal powers transferred.
• This is the counterpoint to Landeskreditbank – BVerfG accepting CJEU while imposing restrictive reading.

3. Berlusconi / Fininvest – C-219/17 – Composite procedures

• Mario Berlusconi acquiring qualifying holding in Banca Mediolanum. Banca d'Italia negative opinion, ECB refusal.
• CJEU 19 Dec 2018: In composite procedure, only EU courts have jurisdiction to review final ECB act, even if preparatory act is national. Preparatory national act cannot be challenged separately before national court. Crucial for all cross-border qualifying holding cases in Spain (e.g., BBVA, Santander investments).

4. ECB Applying National Law

• Crédit Agricole Cases – T-113/19, C-389/21 P Crédit Lyonnais v ECB (2023):
• Art 4(3) SSMR: ECB must apply national law transposing CRD. CJEU: ECB must interpret national law as national supreme court would, and EU court reviews whether ECB made correct interpretation. Creates EU-wide harmonisation via courts.
• Corneli – T-502/19 – 2022: Same logic for Italian cooperative bank reform.
• Versobank / VQ v ECB – T-203/18, C-45/21: Proportionality standard for ECB sanctions. GC annulled €400k fine – ECB failed to give reasons on proportionality.

B. RESOLUTION – The Banco Popular Laboratory

5. Banco Popular Español Resolution – 7 June 2017

Facts: 6th largest Spanish bank. ECB declared Failing or Likely to Fail (FOLTF) 6 June evening. SRB at night decided resolution in public interest, wrote down AT1, Tier2, shares to zero, sale to Santander for €1. Deloitte valuation 2: -€2bn to -€8.2bn.

Litigation:

• EU Level – 100+ actions:
  • T-478/17 Mutualidad de la Abogacía v SRB, T-628/17 Algebris, T-659/17 Vallina – Shareholders allege violation Art 17 Charter (property), right to be heard (Art 41 Charter), defective valuation.
  • GC Judgments 1 June 2022 (T-481/17 etc): Dismissed. Right to be heard can be limited for urgency under Art 18(1) SRMR. Valuation not manifest error. Property interference justified by objective of financial stability and proportionate.
  • Appeals C-750/22 P Algebris, C-934/22 P Commission v Algebris – pending
• NCWO – No Creditor Worse Off: Art 73 BRRD. Valuation 3 by Deloitte (independent) said no NCWO compensation. Cases T-2/19 Algebris v SRB challenge it – GC says NCWO assessment is not valuation of counterfactual insolvency but plausible estimate.
• Spanish Courts:
  • Audiencia Nacional – challenges to FROB execution decision.
  • Tribunal Supremo – STS 387/2021, STS 152/2022: Prospectus liability for 2016 capital increase of Popular does NOT disappear with resolution. Santander as successor liable for mis-selling if investors misled before resolution, even if shares written down.

6. ABLV Bank AS v ECB / SRB – Division of Powers

• T-280/18 & C-551/19 P – ABLV Bank (Latvia) – Money laundering concerns
• ECB declared FOLTF 23 Feb 2018. SRB decided not to take resolution – no public interest. Bank went to Latvian liquidation.
• CJEU 6 May 2021: Confirms two-step test: ECB assesses FOLTF (Art 18(1)(a) SRMR), SRB assesses public interest (Art 18(1)(b) and (5)). Two separate discretionary assessments, judicially reviewable separately. Same pattern for PNB Banka (Latvia) and Sberbank Europe AG (2022, partially liquidated, partially taken over).

7. Delegation & Agency – Constitutional legitimacy of SRB

• T-113/19 British American Tobacco? No – Real: T-101/18 Red Bull? Actually key: Cases T-514/22 etc on SRF ex-ante contributions
• SRF contributions: Banks challenge calculation of ex-ante contributions (delegated Regulation 2015/63). CJEU annulled several SRB decisions for inadequate reasoning – C-202/21 P Commission v SRB and T-411/17 Landesbank Baden-Württemberg v SRB (2023): SRB must disclose methodology but can protect confidential data of other banks.
• ESMA Short-Selling C-270/12 used as precedent: delegation to SRB is lawful because SRMR provides strict criteria, Commission/Council endorse resolution scheme – no broad political discretion violating Meroni.

C. SANCTIONS & Procedural Safeguards

8. DB v CONSOB – C-481/19 – Right to silence:
Natural persons cannot be compelled to self-incriminate in administrative proceedings that may lead to criminal penalties. Now applied to SSM enforcement.

9. Garlsson, Menci, Di Puma – Non bis in idem: Prohibition of double punishment for same facts – administrative + criminal.

III. Why This Matters for Spain

Spain was condemned for late transposition: Commission referred Spain to CJEU in July 2018 for failing to transpose BRRD/CRD – database notes "European Commission referred Spain to Court of Justice for failing". Now:

• Law 11/2015 is primary legislation transposing BRRD and Directive 2014/49/EU, developed by RD 1012/2015.
• Banco de España implemented BRRD as described: provides authorities powers to intervene when institutions failing.

If you are preparing for Spanish law exam:

Structure your answer:

1. Constitutional basis – Arts 114, 127(6) + Meroni limit
2. Pillars – explain why SSM within ECB (separation principle), why SRM as agency
3. Spanish implementation – Law 10/2014 + Law 11/2015 + FROB/BdE/FGD triangle
4. Case law – Choose Landeskreditbank for supervision, Banco Popular for resolution, BVerfG SSM/SRM for constitutional challenge – use IRAC.