A fund mutualised at European level is the most effective tool to protect savers' bank deposits, the European Commission has stated in an assessment submitted to the European legislator.
The Commission tested out three possible scenarios for the creation of the European deposit insurance scheme (EDIS), the third plank of banking union in the eurozone (see EUROPE 11629).
For all the simulations we ran, a mutualised fund "performs better than the mandatory reinsurance and lending schemes, both in providing liquidity and absorbing losses", the European Commission sums up in an analysis document of which EUROPE has had sight. The institution goes on to stress that a fully mutualised fund also offers "greater risk diversification, which minimises the expected losses for the whole financial system in case of asymmetric shock".
The Commission also notes that the performance of the mandatory reinsurance system, which simply networks the existing national deposit guarantee schemes, is close to that of a fully mutualised fund if the ceilings to limit its intervention in providing liquidity and absorbing excessive losses are abandoned.
Reacting to the Commission's assessment, Esther de Lange (EPP, Netherlands) particularly welcomed the last of these findings. "The analysis shows that the difference between a revamped reinsurance phase and full insurance is non-existent in 99.98% of crises and marginal in the final 0.02%", she observed in a press release issued on Tuesday 11 October. She notes with approval the fact that the analysis shows that it is possible to create a system that maximises the potential for shock-absorption while minimising the risk of moral hazard.
At the Ecofin Council of Tuesday 11 October, the European finance ministers took stock of the completion of banking union in the eurozone. Belgium is the only country still to fully transpose the Bank Recovery and Resolution Directive - BRRD) (2014/59). This is the final obstacle before negotiations can start on creating a backstop for the Single Resolution Fund, the financial arm of the resolution plank of banking union (see EUROPE 11639). (Original version in French by Mathieu Bion)