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Resilience of the EU financial sector in the global context - Towards a EU DGS?

EDIS – last piece of the puzzle in the Banking Union

By Turok-Heteš Roman - Director General, Financial Market Section, Ministry of Finance, Slovak Republic

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The financial crisis taught us two things. It showed us how vulnerable and exposed our economies heavily dependent on bank financing are, unveiled banking sector’s risks and exposures at the times of crises. European banks, the backbone of the European Union’s economies, took a sudden hit and gave governments a painful hangover – showing how European countries are exposed at the times of financial calamities.

In the morning came the reaction, designed to cope with the aftermath. We decided to build the Banking Union, an unprecedented step aimed to shield and prevent us from any possible future disaster.

Lots of energy and vast amount of work went into efforts to renew financial markets’ stability. Steps and decisions taken brought us the Banking Union that has become a financial anchor for countries participating in the project, and in the end not just them.

We have created Single Supervisory Mechanism (SSM), complemented with Single Resolution Mechanism and the third sibling, European Deposit Insurance Scheme (EDIS), has been just around the corner. EDIS is a natural continuation of this integration. It is as important as siblings are – it is the last piece of the puzzle needed to finalise and achieve a fully-fledged banking union, seeking to establish stable and sound financial markets and bolster the European economy. The SSM’s single rulebook, common rules for the recovery and resolution, the Single Resolution Board, a joint resolution fund and harmonisation of the deposit guarantee schemes help us address risks within the banking industry.

The banking union seeks convergence, better transparency and predictability of the banking industry in Europe. It tries to alter the paradigm of the incentives for the market participants. It is, however, far from being accomplished.

Quality, not speed, is of the utmost importance.

Despite the mentioned changes, European markets still remain significantly fragmented. Lots of legislative work needs to be done to reach convergence among all participants in order to utilise benefits offered by the European single market, including completion of the banking union where EDIS plays a pivotal role.

Quality, not speed, is of the utmost importance here, but I’m not saying the pace is irrelevant. We cannot afford to rush and miss a step when designing EDIS. Premature push and rushing into things could backfire. We need to be patient in addressing gaps, obstacles accompanying our progress towards implementation and application of EDIS. It has to be right, it has to be done thoroughly and systematically. I am confident the banking union, if designed properly, will weather any future turmoil. We need to go step by step, create stable and well-prepared architecture.

Most importantly, all of this needs to respect and echo understanding of European values.

I see the way forward with EDIS in finding of the compromise between different views. What we need is a proper and sound analysis of the environment. Hold an open discussion on what more can be done to make the system more stable. In doing so, we will, in time, achieve our ultimate goal – by the completion of our banking union, including EDIS, to reach credible and stable financial markets.