Com­mis­sion: New ‘bank­ing union’ mea­sures to re­in­force de­posit pro­tec­tion, re­duce risks

Financial Mirror (Cyprus) - - FRONT PAGE -

The Euro­pean Com­mis­sion has pro­posed a euro-area in­sur­ance scheme for bank de­posits as part of its ‘bank­ing union’ frame­work and has set out fur­ther mea­sures to re­duce re­main­ing risks in the bank­ing sec­tor in par­al­lel.

Fol­low­ing the re­cent cri­sis and fi­nan­cial shocks that can weaken con­fi­dence in the bank­ing sys­tem, the Bank­ing Union was es­tab­lished to un­der­pin con­fi­dence in par­tic­i­pat­ing banks: a Euro­pean De­posit In­sur­ance Scheme (EDIS) will strengthen the Bank­ing Union, but­tress bank de­pos­i­tor pro­tec­tion, re­in­force fi­nan­cial sta­bil­ity and fur­ther re­duce the link be­tween banks and their sov­er­eigns.

The mea­sures an­nounced on Tues­day are one of a num­ber of steps set out in the Five Pres­i­dents’ Re­port to strengthen the EU’s eco­nomic and mon­e­tary union. The Com­mis­sion’s leg­isla­tive pro­posal would guar­an­tee cit­i­zens’ de­posits at the euro area level.

“Com­plet­ing the Bank­ing Union is es­sen­tial for a re­silient and pros­per­ous Eco­nomic and Mon­e­tary Union,” said Vi­cePres­i­dent Valdis Dom­brovskis, re­spon­si­ble for the Euro and So­cial Di­a­logue. He said that EDIS “builds on na­tional de­posit in­sur­ance schemes and would be ac­ces­si­ble only on the con­di­tion that com­monly agreed rules have been fully im­ple­mented. In par­al­lel we need to take fur­ther mea­sures to re­duce risks in the bank­ing sys­tem. We must weaken the link be­tween banks and sov­er­eigns, and put into prac­tice the agreed rules whereby tax­pay­ers should not be first in line to pay for fail­ing banks.”

“The cri­sis re­vealed the weak­nesses in the over­all ar­chi­tec­ture of the sin­gle cur­rency. Since then, we have put in place a sin­gle su­per­vi­sor and a sin­gle res­o­lu­tion author­ity,” said Com­mis­sioner Lord Hill, re­spon­si­ble for Fi­nan­cial Sta­bil­ity, Fi­nan­cial Ser­vices and the Cap­i­tal Mar­kets Union.

“Now we need

to

take

steps to­wards a

sin­gle

de­posit guar­an­tee scheme. As we do so, step by step, we need to make sure that risk re­duc­tion goes hand in hand with risk shar­ing. That is what we are de­ter­mined to de­liver.”

The scheme would de­velop over time and in three stages. It would con­sist of a re-in­sur­ance of na­tional De­posit Guar­an­tee Schemes (DGS), mov­ing af­ter three years to a coin­sur­ance scheme, in which the con­tri­bu­tion of EDIS will pro­gres­sively in­crease over time. As a fi­nal stage, a full EDIS is en­vis­aged in 2024.

EDIS will be built on the ex­ist­ing sys­tem, com­posed of na­tional de­posit guar­an­tee schemes set up in line with Euro­pean rules; in­di­vid­ual de­pos­i­tors will con­tinue to enjoy the same level of pro­tec­tion (EUR 100,000). It will be manda­tory for euro area mem­ber states whose banks are to­day cov­ered by the Sin­gle Su­per­vi­sory Mech­a­nism; but open to other EU mem­ber states who want to join the Bank­ing Union.

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