Commission: New ‘banking union’ measures to reinforce deposit protection, reduce risks
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
steps towards a
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.