SRB Vice Chair Advocates Establishing a Common Deposit Insurer

The SRB Vice Chair noted that SRB has set out key changes to the system to enable the more effective management of bank failures and European Union has put in place a common deposit insurance framework through the Deposit Guarantee Scheme Directive; however, the system still lacks a common deposit insurer. He pointed out that pooling resources at the central level can create a strong fund, which benefits from increased diversification of risks. He notes that a quantitative analysis of the European Deposit Insurance Scheme proposal confirms that a mutualized central fund will be more efficient than many smaller funds and will reduce the risks faced by deposit guarantee schemes. It would also help address the bank-sovereign nexus. Under a fully integrated Banking Union, costs arising for the central fund will be distributed across the European Union, rather than concentrated in one member state, thus reducing the systemic risks and the procyclicality of the system, where costs arising from a bank failure would otherwise mainly fall on banks within the same country. The introduction of a fully mutualized central scheme would also entail having the same rules across member states, with relevant control at the Banking Union level to align management and resources. He emphasized that the way forward is to make progress on all elements in parallel, with European deposit insurance introduced as part of a holistic set of reforms. "This can then deliver a stronger banking sector, more capable of meeting the needs of the European people as we come out of the Covid-19 crisis and begin to invest in the recovery," said Mr. Carpentier.

Related Link: Article on Completion of Banking Union

Keywords: Europe, EU, Banking, Banking Union, Crisis Management, Deposit Insurance, Resolution Framework, EDIS, DGSD, SRB