Dombret: Deposit insurance need not necessarily be European - Frankfurt am Main | 02.06.2016
Speaking at the Deutsche Bundesbank's banking symposium, Executive Board member Andreas Dombret warned against the dangers of hastily implementing the European Commission's proposals to introduce a European deposit guarantee scheme. "If we want to bolster the European deposit insurance component, we should devote some thought to other possible solutions as well," he said at the event in Frankfurt am Main.
The Commission's proposals foresee the gradual implementation of a system of comprehensive insurance by 2024, in which bank customers' savings would be covered by a European fund in the event of a bank insolvency.
Prerequisites have not been met
According to Mr Dombret, the key requirements for a functioning European deposit guarantee scheme have not yet been met, however. These include, first and foremost, ensuring that all member states implement the agreed recovery and resolution measures for credit institutions as well as those for harmonising the existing deposit protection schemes.
Not all the member states are meeting this objective at present. In Mr Dombret's words, "Risks at the European level can be communitised only if all the members of the common deposit insurance scheme make the same efforts to limit the risks". Furthermore, sovereign risk in bank balance sheets needs to be reduced once and for all, and the preferential regulatory treatment of government bonds done away with. "If the status quo were to remain in place, a single deposit insurance scheme could mean the communitisation of sovereign debt through the back door," Mr Dombret cautioned. "And third, Europe needs to make genuine progress in economic policy integration, including a general insolvency regime," the Bundesbank Executive Board member added.
The fact that such rules still differ significantly at the national level would otherwise have direct implications in terms of the banks' risk position and the burdens that lie in wait for them in the event that their borrowers become insolvent. "This means that they also have an impact on how likely the banks are to draw on the deposit insurance scheme - and how heavily," Mr Dombret remarked.
Copyright: Deutsche Bundesbank, Frankfurt am Main, Germany"
page source http://www.bundesbank.de/
