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Commission Proposes Euro Wide Banking Deposit Insurance Scheme

By:
Peter Taberner
Published: Nov 25, 2015, 11:03 UTC

The European Commission has put forward its plans for an insurance scheme that is designed to protect banking deposits, and to mitigate risks in the

Commission Proposes Euro Wide Banking Deposit Insurance Scheme

The European Commission has put forward its plans for an insurance scheme that is designed to protect banking deposits, and to mitigate risks in the banking sector.

A European Deposit Insurance Scheme (EDIS), will strengthen the European Union’s plan for economic and monetary union, that would guarantee citizen’s banking deposits across the euro area,  the Commission believes.

Alongside bank depositor protection, reinforcing financial stability, and further reducing the link between banks and their sovereign debts, are main aims of the scheme.

Key Points on Insurance Scheme

The EDIS will be largely built on the current scheme that is in place, and will provide the EUR100,000 level of protection that is available to individual depositors now.

Contributions that the banks made to EDIS, can be deducted from their payments to national deposit guarantee schemes, the plan being to make EDIS a cost neutral effort

There will be a layered system in place, where banks that are deemed to be far more risky than others, will pay higher contributions that those banks who are on more of a steady footing.

As EDIS is introduced on a gradual basis, this process will be  fortified with further risk weighted adjustments being made, as the deposit insurance system becomes more embedded.

Strict safeguards will be in place for EDIS, as it will only insure national deposit schemes that are in compliance with European Union rules.

Also, EDIS will be mandatory for banks which are covered by the Single Supervisory Mechanism, but is also open to European Union members, who are not part of the euro area.

There will be three evolving steps for EDIS that include re-insurance, which will last for three years up to 2020.  This is where  a national deposit insurance scheme would have to be fully exhausted before access is allowed to EDIS.

From 2020 with the re-insurance scheme in place, there will be a co-insurance phase, resulting in EDIS becoming a mutualised system.

Before the final stage of full insurance, where EDIS will be fully responsible for insuring national deposit schemes by 2024.

Risk Reduction Measures Involved

Concerted efforts will also be made to reduce banking risks being taken, such as measures to ensure that banks’ exposure to risk is diversified.

There is a planned harmonisation of national deposit insurance schemes, and the implementation of regulatory framework aspects to limit bank leverage, to ensure stable funding, and improve comparability of weigh related assets.

Germany Critical of Scheme

Germany have been not impressed by the proposals put forward by the Commission, and have expressed their concern. They believe that a mutual system is not viable as banks in all member states have disparate levels of risk and sovereign debt.

In response to the proposal announcement, German finance minister Wolfgang Schaeuble said that the banking sector should be made crisis proof, before a deposit insurance system is in place.

Meanwhile, official figures have reported that price adjusted new orders in the German construction industry has grown by 7.2% for September this year, from the figures in August.

In construction and civil and underground engineering, for enterprises with 20 or more employees, turnover increased 2.4% compared with September 2014.

Commission Proposes Euro Wide Banking Deposit Insurance Scheme
Commission Proposes Euro Wide Banking Deposit Insurance Scheme

 

 

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