EU report proposes EU-wide deposit insurance by 2017

Reuters

European Union savers should have their deposits guaranteed against a bank default by an EU-wide guarantee that would complement by mid-2017 existing national schemes, the presidents of five EU institutions proposed in a report to be published on Monday.

EU states are already obliged to protect bank deposits up to 100,000 euros ($113,500), but with several credit institutions underperforming and growing fears of Greece defaulting in a move that could hurt its banks, this guarantee may not be enough.

To prevent European taxpayers from being forced to rescue banks as happened after the financial crash of 2008, European Commission President Jean-Claude Juncker, in report prepared with among others European Central Bank chief Mario Draghi, proposed a European Deposit Insurance Scheme.

Its initial form may be that of an EU "re-insurance system" for national deposit guarantee schemes.

Banks would fund EDIS, according to the plan, adding to the levies already imposed on European credit institutions to set up a bank bailout facility, known as Single Resolution Fund (SRF).

The proposal, which will be part of a report to be reviewed by EU leaders this week, includes changes to the SRF so that it could benefit from a backstop provided by the 500-billion-euro euro zone bailout fund until 2024, when the SRF target capital of 55 billion euros is expected to be fully covered by banks.

The euro zone bailout fund, know as the European Stability Mechanism, would provide emergency loans to the SRF in case its capital proved not enough to bail out a bank. The plan makes clear that banks would pay back the loans.

The ESM itself is under review by the EU leaders, who want the fund to be able to recapitalise ailing banks with a more straightforward procedure than currently foreseen.

The aim is to break a vicious circle seen in the crisis when cash-strapped states bailed out weak banks, which were in turn heavy buyers of that government's bonds as they fell in value.

To further cut this "doom loop", the report said, EU leaders should in time review the treatment of bank exposures to sovereign debt "for example by setting large exposure limits". (Editing by Alastair Macdonald)