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Simon Samuels, the Barclays Bank analyst, says the only way that banks can offset this risk is by raising the interest rates payable on deposits over that €100,000 threshold to encourage customer loyalty. Extrapolating from the cost of insuring the bonds of 16 European banks, Mr Samuels reckons interest rates will have to rise by up to 0.5 percentage points for the weakest banks in the eurozone periphery.
The hit to profitability will be an aggregate €8 billion, with a further €7 billion overhead resulting from the cost of implementing an EU plan to see that all national deposit guarantee funds are pre-financed. Schemes in countries such as the UK and Italy currently have zero upfront funding.
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