Brussels, 26/04/2016 (Agence Europe) - The ECB is calling for a backstop for the future European deposit insurance system (EDIS), the third pillar of Banking Union in the Eurozone.
“The ECB is of the view that a fiscally neutral common public backstop for the EDIS at the latest as of the full insurance stage is necessary to ensure a uniformly high level of confidence in deposit protection under all circumstances and to effectively weaken the bank/sovereign link at the national level”, the European institution declares in its opinion on the proposed regulation instituting the EDIS system, dated Wednesday 20 April.
It argues that this backstop, which will be built up between now and 2014 as the EDIS is pooled, would help to shore up the banking system of the Eurozone by providing guarantees for depositors established in countries in a delicate budgetary situation. The European Stability Mechanism (ESM), the permanent bailout fund of the Eurozone, would be a “possible option” to establish this backstop, for which the European Commission makes no provision in the legislative proposal it has tabled (see EUROPE 11437).
Despite a joint request from France and Italy, the Eurozone countries have not yet started talks on a backstop for the Single Resolution Fund (SRF), the financial arm of the 'resolution' plank of Banking Union in the Eurozone.
Reduction of risks. Although it takes the view that the EDIS will automatically help to reinforce financial stability, the ECB believes that the work on the reducing and sharing of financial risks in the banking sector should progress “in parallel”. “However, a solution that makes the transition from one phase of EDIS to the next dependent on the progress with regard to risk reduction could cause delays” in the completion of Banking Union, according to the monetary Institute, which is now responsible for the direct supervision of nearly 130 major Eurozone banks. All the same, if the option of a “conditional” phasing-in of EDIS is decided upon, any milestones on risk reduction would have to be precisely defined ex-ante and would need to be quantifiable and directly linked to bank deposit protection, it argues.
Article 114. It is worth noting that in the view of the ECB, the 'single market' legal base (article 114 of the Treaty) on which the EDIS proposal is based should not even be up for discussion, whereas Germany has challenged it and the legal services of the Council of the EU have opened the door to an inter-governmental approach for provisions not to be harmonised at European level (see EUROPE 11532). (Original version in French by Mathieu Bion)