Brussels, 24/11/2015 (Agence Europe) - On Tuesday 24 November, the European Commission announced a proposed regulation to bring in a European deposit insurance system (EDIS), the third pillar of banking union in the eurozone, which will have €43 billion in 2024.
“We have adopted a proposal which gradually puts in place an EDIS by 2024” and, in parallel, we have published a communication which details measures aiming to “reduce risks in the banking sector”, the Commissioner for Financial Services, Jonathan Hill, announced from Strasbourg, following the weekly meeting of the European Commission. In response to questions about Germany's opposition to this project, he described the tabled legislative text as “very well-balanced”, as it will make it possible to both share and reduce bank risks.
The EDIS system, which will be obligatory for all countries of the eurozone, will back up national regimes which cannot deal with a bank's failure on its own, as long as the member state in which the failing bank is established has complied with all of the European legislation on bank restructuring ('BRRD' directive 2014/59, see EUROPE 11416) and the deposit guarantees ('DGS' directive 2014/49, see EUROPE 11426). “There's no such thing as a free lunch”: you qualify for financial support under the EDIS system only if you comply with all of the banking prudential rules, Hill stressed.
As anticipated (see EUROPE 11436), the EDIS system, as devised by the Commission, includes three stages leading to a full pooling of the risks related to bank deposits, which will be guaranteed up to €100,000 throughout the EU. Between 2017 and 2020, a reinsurance mechanism will only cover losses that cannot be absorbed by a national deposit guarantee scheme. During this period, however, European intervention will not be able to cover losses exceeding 20% of its annual input. Between 2020 and 2024, a co-insurance mechanism would be triggered from the first euro of losses suffered by a bank. Over this period, the share of the annual input of the mechanism which can be used to absorb losses would rise from 20% to 100% (annual tranche of 16%). From 2024 onwards, the mechanism will be fully pooled and will be fed into by 0.8% of bank deposits covered within the eurozone. According to the Commission, on the basis of data from 2011, the future European Deposit Insurance System will then have an intervention capacity in the region of €43 billion.
Irrespective of their size, all eurozone banks will be covered by the EDIS system. The levels of their ex ante contributions to the future European system will depend on the financial risks they run. It will be the responsibility of the European Banking Authority (EBA) to design specific methodology, which must be approved by the European legislator by means of a delegated act. For the banks, contributing to the EDIS system will not constitute an additional expense, but will be a proportion of the annual contribution normally earmarked for the national deposit guarantee fund.
It will be the job of the Single Resolution Board (SRB), the European authority which will manage the Single Resolution Fund from January 2016 (see EUROPE 11420), to manage the future European deposit insurance fund, provisions having been made for full separation between the management and activation of the two funds. The legislative proposal presented on Tuesday modifies the regulation (806/2014) instituting the single resolution mechanism, with the same legal basis as the SRB. The Commission argues that the dual responsibility conferred upon the SRB will allow the European authority to be the “main point of entry in the event of banking crisis” and to create “synergies” by combining the 'resolution' and 'deposit guarantee' functions.
Reassuring Germany. Although it accepted the principle of banking union in the eurozone in summer 2012 to break the links between bank crises and public debt crises, Germany continues to have misgivings about the idea that its banking sector could be called upon to mop up losses suffered by other eurozone banks.
The problem lies mainly in German savings banks ('Sparkassen'). Unlike cooperative banks ('Landensbanken'), these have opted, for reasons of economy, to merge their intra-group insurance system (IPS) and their contributions to the German deposit guarantee scheme. They refuse to allow any proportion of their IPS to be fed into the future EDIS system.
In order to reassure the largest economy of the eurozone, the Commission at the same time presented a communication in which it lists measures which may be taken to reduce the risks on the financial markets. First of all, it will ensure that the existing bank prudential rules are correctly applied throughout the EU. In 2016, a legislative proposal will be tabled aiming to transpose the TLAC buffer approved at the recent summit of the G20 and applicable from 2019 into Community law (see EUROPE 11431). The European institution will also propose legislative changes regarding the calibration of prudential ratios (NSFR, leverage). It is furthermore planning an in-depth review of the leeway afforded to the national supervisors in assessing the internal models used by the banks to value their risk-weighted assets. Lastly, it will tackle the 146 options and cases of leeway laid down in the banking prudential legislation, which allow the member states to deviate from the common rules (e.g. deferred tax assets/credits). (Original version in French by Mathieu Bion)