This week, the European Commission presented its plans as to how savings of citizens and companies will be made even more crisis-proof by introducing a unified Europe-wide deposit insurance scheme. However, some Member States, among them especially Germany, are sceptical.

The plans to set up a European deposit insurance scheme (EDIS) do not come as a surprise. The so-called Five Presidents' Report on strengthening the Economic and Monetary Union already declared that an EDIS would be a consequent and necessary step towards the completion of the European Banking Union. As it is well known, the point of the Banking Union was to ensure that as a consequence of the experience of the financial crisis national supervisory bodies would lose their assignment to supervise the largest system relevant banks in the EU and that this task was transferred to the European Central Bank. This was to prevent Member States only hesitantly fulfilling their supervisory duties in respect of banks in their territory as they wanted to protect “their” institutes against requirements they regarded as too strict. According to experts, the current experiences with the new supervisory structure are positive; so far, the ECB appears to fulfil its role as a supervisory body very well. The second pillar of the Banking Union consists of unified Europe-wide rules, as to how to deal with failed banks to ensure that it will not be the taxpayer again who has to foot the bill for any failures.

Why the introduction now of a third element of a Europe-wide deposit insurance scheme? A decision had already been made in the wake of the financial crisis that in case of a bank failure, the deposit insurance scheme of the Member States had to guarantee that deposits by savers of up to an amount of EUR 100.000 are safe. One might say from the point of view of ordinary citizens, that this would adequately provide safety for small savers. However the Commission justifies its proposal by saying that in case of a bigger banking crisis in a Member State the national deposit insurance scheme might collapse. If this would occur, the Europe-wide deposit insurance scheme should step in and assist as part of a solidary group.

The European deposit insurance scheme shall be gradually developed in 3 stages to be completed by 2024. In a first stage by 2020, in case of a banking crisis in a country, where indeed payments to savers are to be made from the national insurance scheme, however, where the national coffers are empty, a certain amount from the European coffers will be transferred to the affected Member State. In a similar case in the second stage to be completed by 2024, the national coffers do not have to be completely empty; the European scheme will come into effect earlier. Finally, in the last stage from 2024 any problem cases will be paid exclusively from the European scheme.

In the final phase, the European Deposit insurance scheme shall mobilise funds in the amount of 0.8 % of the deposits of all banks of the Banking Union; that would result in an overall amount of about EUR 43 billion. In addition, the banks, depending on how risky their transactions are, would pay over a period of 8 years, 12.5 % p.a. of the target volume into the fund until it was complete.

The proposal of the Commission must now be debated and negotiated by the European Parliament and the Council of the European Union. Important Member States such as Germany are sceptical as they fear that their relatively solid deposit insurance schemes might have to bail out failed banks in other Member States. Hence, there is still a lot of persuading to do as well as a need for compromises.

Further information:

Topic page of the European Commission

COMM: Questions and answers