Brussels, 09/06/2016 (Agence Europe) - During a debate on Thursday 9 June on reinforcing the Economic and Monetary Union, in the framework of the 'Economic Form of Brussels' of the European Commission, the Governor of the Bank of France, François Villeroy de Galhau, said that creating a system of co-insurance for bank deposits of the Eurozone would be “already a very significant progress”.
According to the former head of BNP Paribas, the creation of the European deposit insurance scheme (EDIS), the third pillar of banking union in the Eurozone, is “wishful”, but should be done “progressively”, for instance by first making sure that the national deposit guarantee schemes are working. A co-insurance mechanism for bank deposits would be “already a very significant progress”, he said, but did not clarify whether he felt it was necessary ultimately to end up with a pooled mechanism capable of protecting bank deposits to a level of €100,000 per saver.
In late November 2015, the European Commission proposed completing banking union with the EDIS system, which would lead, by 2024, to a full pooling of the risks related to bank deposits through a dedicated guarantee fund (see EUROPE 11437). Before this pooling, two interim stages are envisaged: - between 2017 and 2020, a reinsurance mechanism would absorb only the losses that a national deposit guarantee scheme could not cope with; - between 2020 and 2024, a co-insurance mechanism would be triggered from the first euro of losses suffered by a bank.
This proposal has come in for criticism from Germany, which is challenging the need for it and its legal base (article 114 'single market' of the treaty), whilst France and Italy are very much in favour. The German savings banks are opposed to it. Recently, the French Banking Federation announced that it would prefer to stick with a reinsurance system for the national deposit guarantee funds.
In order to move the dossier forward, the work of the Council of the EU is progressing in parallel on measures to reduce and share bank risks (see EUROPE 11565). During the debate, the Commissioner for the Euro, Valdis Dombrovskis, also stressed that it was “essential” that the Ecofin Council of Friday 17 June decide upon a “roadmap” on the completion of banking union. Paulina Dejmek-Hack, financial services specialist within the cabinet of the President of the European Commission, argues that banking union must be finalised for reasons of “financial stability”.
Villeroy de Galhau stresses that the 'supervision' plank of banking union is working. On the other hand, the Bank of France Governor also feels that extra work will be needed to complete the 'resolution' plank, specifically: adapting the minimum own funds requirements (MREL) laid down in European law to take account of the G20's TLAC standard for systemic banks, and the creation of a backstop for the Single Resolution.
Earlier, the President of the ECB, Mario Draghi, stressed the need to restore clarity and confidence in the institutional architecture of the Eurozone, due to the negative impact of the identified shortcomings on the European economy. The monetary institute said that completing banking union is one of the short-term measures identified and one that does not require treaty change. (Original version in French by Mathieu Bion)