Speakers of the session
Chair, Single Resolution Board
Esther de Lange
MEP, Committee on Economic and Monetary Affairs, European Parliament
Governor, Oesterreichische Nationalbank
Head of Resolution and Crisis Management Unit, DG for Financial Stability, Financial Services and Capital Markets Union, European Commission
Director General, Financial Market Section, Ministry of Finance, Slovak Republic
François Villeroy de Galhau
Governor, Banque de France
Head of Public Affairs, Groupe BPCE
José Manuel González-Páramo
Member of the Board of Directors, Banco Bilbao Vizcaya Argentaria (BBVA)
Executive Member of the Board, Deutscher Sparkassen- und Giroverband (DSGV)
Objectives of the sessionThe “Five Presidents’ report” highlights common deposit insurance as a desirable and realistic objective for the financial sector. The aim of this session is to discuss the key success factors needed for the adoption of the legislative proposal of the EU Commission for a common deposit insurance scheme.
Speakers will also be invited to assess the improvements brought about by the EDIS proposal to the Banking Union and the added value of tackling at the same time the risk reduction measures in the banking system (notably bank exposure to sovereign risk).
Points of discussion
Why do we need an EDIS?
- What are the advantages of an EDIS considering the existence of the single supervisor, the Single Resolution Board, national resolution funds, the Single Resolution Fund, the ESM Direct Bank Recapitalisation Instrument, national DGS and IPS, recovery plans and bail-in instruments? Should not a European backstop to the Single Resolution Fund be a higher priority? Could a true reinsurance approach at the EU level, backing national DGS be not sufficient to reinsure depositors, international investors and prevent bank runs?
- What is the likelihood of an EDIS intervention being necessary and for what type of banks and crises? In which countries may an EDIS be the most useful? Which banks would benefit most from an EDIS
What are the key success factors for its adoption?
- Do the implementation of the 2014 DGS directive, the resolution framework and sufficient economic convergence between euro Member States constitute necessary steps before the introduction of a fully mutualized EU deposit insurance system?
- Should an EDIS cover all EU banks, taking into account that only the most significant ones (129 banks) are under the direct supervision of the ECB? If the EDIS covers all the banks of the euro area, should it request a more efficient macro and micro supervision (e.g. a comprehensive assessment of all EU banks) before the full mutualisation of risks takes place?
- What are the respective strengths and weaknesses of the different possible forms of EDIS (e.g. reinsurance system, creation of a specific EU fund…)?
- Is it appropriate to link the EDIS proposal to “risk reduction” and notably to the prudential treatment of bank exposure to sovereign risk? How could cost-neutrality for the banking sector be achieved?
- If EU Institutions address bank exposure to sovereign risk without an international agreement on this issue, would this put EU banks and EU sovereigns at a disadvantage in the global context?
Background of the sessionTo ensure that deposits are truly safe everywhere across the euro area, the likelihood that a bank might fail has to be independent of the jurisdiction where it is established. And, when push comes to shove, depositors must be afforded similar protection wherever they are located.
The Commission proposed on 24 November 2015 a regulation to establish a European Deposit Insurance Scheme (EDIS) as a third pillar of the Banking Union, alongside arrangements for banking supervision and resolution. It would be mandatory for euro area countries and open to other member states participating in the Banking Union.
The European Deposit Insurance Scheme would be established in three successive stages. During the reinsurance period of three years, the national DGSs would have to be exhausted first before EDIS could be used, providing with national schemes an additional source of funding.
This reinsurance phase would be followed by a progressive mutualisation of deposit insurance over a period of four years. To reduce moral hazard, the EDIS proposal contains some safeguards. For instance, in the first two phases, the national scheme has to comply with the obligations of the DGS Directive (adopted in June 2014), in particular with regard to the required annual target levels, before receiving any extra support by EDIS. The full insurance of depositors would fall under EDIS from 2024 onwards.
The Single Resolution Board (SRB) would be expanded to administer EDIS.
In the communication “Towards the completion of the Banking Union” (November 2015), the Commission envisages a set of measures to reduce risk in the banking sectors of the Member States, accompanying the introduction of EDIS. These measures, which include among others the treatment of sovereign exposures, are also designed to break the bank-sovereign link. According to the EU Commission, the implementation of both the EDIS proposal and the risk reduction measures should be promoted in parallel.
Completing the Banking Union makes sense according to many stakeholders and setting up an EDIS is an appropriate way forward: the place where you live in the Union should not play a role in how safe your savings are. In other words, money can only be truly single if confidence in the safety of bank deposits is the same irrespective of the Member State in which a bank operates.
But completing the Banking Union has to be effected on a solid foundation. Indeed several points should be taken into account: the 2014 Directive on Deposit Guarantee Schemes is not yet fully transposed and implemented; the resolution framework of the Banking Union still needs clarification (TLAC is not yet transposed in the BRRD, MREL are not defined for EU banks etc.); not all the banks that would benefit from the EDIS are submitted to a Comprehensive Assessment of the ECB (Asset Quality Review, stress test), and some Member States of the Euro area are not compliant with the Stability and Growth Pact rules and have not yet achieved sufficient economic convergence .
In addition, coupling two separate issues - EDIS and risk reduction measures (notably prudential sovereign treatment) - might complicate both discussions. The Basel Committee is currently working on the prudential treatment of sovereign exposure. According to many observers, the EU agenda should not rush to conclusions ahead of international developments on this issue. One issue to be discussed is whether Europe should follow or precede the decisions of the Basel Committee and what are the advantages and drawbacks of both approaches.