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Resilience of the EU financial sector in the global context - Towards a EU DGS?
Towards an EU DGS?
By De Lange Esther - MEP, Committee on Economic and Monetary Affairs, European Parliament
In response to the financial crisis, the European Union set up a Single Rulebook: a set of rules for all banks operating in the Union. On the foundations of this Single Rulebook, the Banking Union was built. The Single Supervisory Mechanism (SSM) was the first pillar, followed by a Single Resolution Mechanism (SRM) with a Single Resolution Fund (SRF). The guarantee of EU citizens’ deposits took more shape on the basis of a review of the (national) Deposit Guarantee Scheme Directive (DGSD). This created a situation in which the supervisory and resolution pillars of the Banking Union were to a large extent transferred to the EU-level, whereas the guarantee of deposits remains mostly a national affair, albeit within a Europan framework.
At the end of 2015, the European Commission presented a European Deposit Insurance Scheme (EDIS). EDIS is envisaged to develop in three stages: 1) a reinsurance phase lasting three years during which a national DGS would be able to access EDIS funds only after exhausting the resources it should have built up, with additional funds available through EDIS only up to a certain level. In practice, this would entail primarily liquidity support; 2) A co-insurance phase under which EDIS would become a progressively mutualised system and a national DGS would be able to access EDIS funds prior to exhausting their own in order that EDIS contribute a share of the costs beginning at 20% and increasing over a four year period; 3) until the launch of a full-insurance phase under which EDIS would fully insure deposits for the Eurozone and for other Member States who decide to join the Banking Union as well.
Looking at the development of the EU’s Banking Union from a purely academic point of view, a three-pillar structure with all three components organised at the EU level makes perfect sense. For the European Parliament, the place where you live in the Union should not play in role in how safe your savings are. This desire is one of the key driving forces behind the creation of an EU-level DGS. Academically, one could also presume that a European DGS would anchor trust in a sector in dire need of it. However, we are not in the luxury position of looking at this from solely an academic point of view. Relations between Member States are characterised by a lack of trust. Furthermore, we see a great dispersion of risk lingering among the Union’s Member States. We see it, for example, in the amount of non-performing loans and in the strong exposure to sovereign debt. Moreover, we have not yet seen any proof that the mechanisms we have put in place for failing banks are working. And important Banking Union legislation, such as the DGSD and the Banking Resolution and Recovery Directive (BRRD) have not even been fully transposed and implemented yet. We simply have not yet seen the proof of the pudding. We need to address this before it would be opportune to further mutualise risks in the European banking sector.
It will take a joint effort of concrete risk reduction measures in order to take steps towards an EU DGS.
As the EU is a sui generis construction, responsibilities will always need to be taken at both the national and the European levels. Moral hazard will need to be addressed. Risk reduction is a responsibility of the sector, national authorities and the European level. It will take a joint effort of concrete risk reduction measures in order to take steps towards an EU DGS. Without this joint effort, EDIS risks being built on quicksand. With it, it can make our banking union stronger.