25-11-2015

Hill: Need to take steps towards a single deposit guarantee scheme

The cep, however, believes  that there is no compelling case for a deposit guarantee scheme for the Eurozone

The EU Commission has proposed on Tuesday a euro-area wide insurance scheme for bank deposits. “A European Deposit Insurance Scheme (EDIS) will strengthen the Banking Union, buttress bank depositor protection, reinforce financial stability and further reduce the link between banks and their sovereigns”, the Commission said in a press release.

EU Commissioner Lord Hill, responsible for Financial Stability, Financial Services and the Capital Markets Union, said: “The crisis revealed the weaknesses in the overall architecture of the single currency. Since then, we have put in place a single supervisor and a single resolution authority. Now we need to take steps towards a single deposit guarantee scheme. As we do so, step by step, we need to make sure that risk reduction goes hand in hand with risk sharing. That is what we are determined to deliver.”

The cep, however, believes that there is no compelling case for such a Deposit Guarantee Scheme. According to economic theory, a Eurozone Deposit Guarantee Scheme may offer a comparative benefit over the existing deposit guarantee schemes. The prerequisites which have to be met in order to correct false incentives make it imperative to establish a scheme with “national compartments.” However, these compartments reduce the comparative advantage of a deposit guarantee scheme for the entire Eurozone. See also our cepInput.