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

Full implementation of national DGSs prior to any European co-insurance scheme

By Duhamel Nicolas - Head of Public Affairs, Groupe BPCE


Towards the Banking Union completion, the Euro zone has been developing new measures to protect the depositors (DGS/Deposit Guarantee Scheme; EDIS/European Deposit Insurance Scheme; DIF/Deposit Insurance Fund) and the real economy (SFR/Single Resolution Fund) from banks’ insolvency.

DGS directive provides for the constitution of national guarantee funds, meant to protect individuals against the loss of their deposits: implementation varies across jurisdictions, French banks have reached 60% of the 2024 target level.

With EDIS, the Commission expects to achieve further financial integration, in particular protect the depositors against large local shocks and reduce the link between banks and their home sovereign.
It pledged not to put further burden on the banks that contributed to their national funds, nor to ask any jurisdictions to substitute for other insufficiently funded DGS. In order to be cost-neutral for banks, the DIF should be contributed progressively by transfer from the national funds. Similarly, mutualisation of risk and access to the DIF should be granted when the Members States have complied with DGS requirements.

The Commission also stated the necessary segregation between SRF and DIF.

We therefore expect to differentiate the seekers for resolution or liquidation support. Indeed the authorities might be more prone to resolve than to liquidate systemic banks that face global crises: large diversified banks are very unlikely to draw on DGS. Conversely small banks or banks located in States with poor confidence in the sovereign might rather be candidate to: small deposit banks might draw on DGS and DIF, but seldom on SRF.

We advocate for contribution criteria that reflect the inherent nature of the funds.

Consequently we advocate for contribution criteria that reflect the inherent nature of the funds. We believe that the full implementation of DGS shall be a prerequisite before any co-insurance through EDIS. We also urge for further harmonization of national funds regarding pay-out conditions, equivalent level of financing amongst the different national funds, preliminary examination of the banks’ asset quality.

In order to achieve cost neutrality, we propose to capitalise on the DGS infrastructure and organise the mutualisation mechanism at the jurisdiction rather than at the bank level.

Lastly, as in the case of the resolution fund, we believe that the structure of the liabilities and the leverage between bail-in-able instruments and guaranteed deposits is a good indicator of contribution requirement: the higher the leverage, the less need for guarantee.