Europe's much-vaunted banking union may still be a work in progress but the European Commission's head of financial regulation told CNBC that banks in the region are far more resilient now than before thanks to new rules in the financial sector.
"Banks are better capitalized, they are more resilient, we've now got a situation from the beginning of January that if a bank goes down, it's actually not the taxpayers in future that will have to bail it out," Jonathan Hill told CNBC on the sidelines of the World Economic Forum (WEF) in Davos on Thursday.
Europe's banking system was hard hit by the global financial crisis and, as a result, a raft of lenders in Cyprus, Ireland and Spain either received bail-outs or wound up. In effect, taxpayers and (in the case of Cyprus) some depositors bore the brunt of the bailouts.
In order to prevent future financial shocks permeating the entire region, the euro zone is creating a more integrated and regulated banking union in order to create what the European Commission hopes will be a "safer and sounder financial sector for the single market."
Initiatives within the union include creating a single supervisory mechanism overseen by the European Central Bank, a single resolution mechanism – and crucially, a single resolution fund to rescue banks -- for the banking sector.
Put simply, once informed by the ECB that a bank is in trouble, the single resolution board "will be responsible for taking most decisions on the best course of action and will prepare for the resolution of the stricken bank. The fund, which will amount to 55 billion euros within eight years, will be financed by all the banks in the banking union countries," the Commission states on its website.
Hill is responsible for ensuring that financial markets are properly regulated and supervised and have a role in implementing the banking union.
He said that stress tests carried out by the ECB on the region's banks had "shown that the banking sector in Europe is far more resilient" however, if some of the regulations being introduced – such as the capital requirements regulation -- were not "working in the right way," the banks should let the commission know, Hill said.
"We're trying to look at the effect of the regulation that we passed over the last six, seven years since the crisis to make sure we've got it right. We need to make the system safe but we want to do it in a way that doesn't limit growth."
Hill is also responsible for establishing a "Capital Markets Union" (CMU) by 2019 for all 28 member states of the EU. This aims at essentially mobilizing capital in the region for the rest of the economy, particularly small and medium-sized businesses and infrastructure projects that will create more jobs.
Hill was not worried that current market volatility would affect the progress of capital markets union, saying it was a project for the long-term.
"What I'm trying to do with the Capital Markets Union, as well as the Banking Union, is to take measure for the long-term, to put infrastructure in place that will help investment and growth for many years to come…but I didn't say we would complete CMU by 2017 because I don't think that's realistic, there are a whole complex of issues that interlink (to resolve)."