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The Banking Union was established to underpin confidence in participating banks: a European Deposit Insurance Scheme (EDIS) will strengthen the Banking Union, buttress bank depositor protection, reinforce financial stability and further reduce the link between banks and their sovereigns.
Today's measures are one of a number of steps set out in the Five Presidents' Report to strengthen the EU's economic and monetary union. The Commission’s legislative proposal would guarantee citizens' deposits at the euro area level. The proposal is accompanied by a Communication, which sets out other measures to further reduce remaining risks in the banking system in parallel to the work on the EDIS-proposal. [...]
The scheme would develop over time and in three stages. It would consist of a re-insurance of national Deposit Guarantee Schemes (DGS), moving after three years to a co-insurance scheme, in which the contribution of EDIS will progressively increase over time. As a final stage, a full European Deposit Insurance Scheme is envisaged in 2024. The scheme includes a series of strong safeguards against 'moral hazard' and inappropriate use, in order to give incentives to national schemes to manage their potential risks in a prudent way. In particular, a national scheme will only be able to access EDIS if it fully complies with relevant Union law.
Key points
The European Deposit Insurance Scheme will be:
- built on the existing system, composed of national deposit guarantee schemes set up in line with European rules; individual depositors will continue to enjoy the same level of protection (€100 000);
- introduced gradually, step by step;
- overall cost-neutral for the banking sector: the contributions banks make to EDIS can be deducted from their national contributions to deposit guarantee schemes;
- risk-weighted; riskier banks will pay higher contributions than safer banks, and this will be strengthened as EDIS is introduced gradually; risk adjustments will apply from the outset
- accompanied by strict safeguards: for example it will only insure those national DGS which comply and are being built up in line with EU rules;
- accompanied by a Communication setting out measures to reduce risks, such as future proposals to ensure that banks’ exposures to individual sovereigns risk is sufficiently diversified; and
- mandatory for euro area Member States whose banks are today covered by the Single Supervisory Mechanism; but open to other EU Member States who want to join the Banking Union.
European deposit insurance scheme
Speech given by Commissioner Jonathan Hill at the Press Conference on the EDIS Proposal at the European Parliament
[...] At its most simple, what we are proposing to do is to move from the current system of national deposit guarantee schemes to a scheme that will underwrite deposits across the whole Banking Union. Depositors already have the confidence of knowing that their deposits are guaranteed up to €100,000 if their bank goes bust. A European-wide scheme would mean that banks would be better protected if there were larger local shocks. It would also fit within the overall logic of having Europe-wide supervision and resolution.
You will have some more detailed information both on the proposal and the Communication, so let me just highlight some of the main political elements and the way that we have approached things.
We have followed a step-by-step approach to take things in stages so that we can build confidence and trust as we take each step. We want to take the first step – the introduction of a re-insurance scheme – in 2017. We would run that for three years, and then gradually build up the fund on the basis of co-insurance, where you start to mutualise debt, until it is fully mutualised by 2024. Through all of it, individual depositors will of course continue to get the same level of protection as now - €100,000.
Overall it will be cost-neutral for the banking sector – contributions into EDIS will be deducted from what banks are due to pay into their national DGS.
I'm keen to stress that overall this is a balanced approach with no free rides – the deal is something for something, not something for nothing. So, you won't get any money out of EDIS unless you have first paid your full contribution to your national DGS. During the re-insurance phase - the first three years – you wouldn't be able to get any money out of EDIS until all the money in your national DGS has been paid out.
Next, once you move beyond the re-insurance phase and start sharing risk more directly, in what we're calling the co-insurance phase, we will move to a system of risk-based contributions – so riskier banks would have to pay higher contributions than safer banks.
In the Communication, we set out a range of other measures to reduce risk including looking at how banks' exposure to sovereign risks can be better diversified. And, of course, before any of this, we need to start with the basics – all countries need to implement the legislation that they have already agreed upon: transposing the BRRD and the DGSD, and ratifying the Inter-Governmental Agreement that determines contributions to the Single Resolution Fund.
Like all other aspects of the Banking Union, this will be mandatory for euro area Member States, but also open to any Member State which wants to join Banking Union. [...]