ECB now presses, “All the conditions are in place for the deposit guarantee scheme”

Brussels – No more excuses, and therefore no more delay. The conditions for a European bank deposit guarantee scheme are all there, and eurozone member states cannot ignore it. This is the conviction of Claudia Buch, chairwoman of the Supervisory Board of the European Central Bank, who delivers a direct invitation to governments at a hearing in the EU Parliament’s Economic Affairs Committee.

The European Deposit Insurance Scheme, better known as EDIS, has experienced tensions and divisions around the table over the never-ending conflict between those who wanted to prioritize the reduction of risks and those who wanted to mutualize them. Rigorist countries, led by Germany, fear that taxpayers’ money will end up “bailing out” other countries’ banks, and to lift vetoes and reservations, they are asking others to secure lenders before putting money in. 

“Risks have decreased significantly, and common supervisory standards have been established,” Buch stressed before MEPs. “These requirements for the EDIS are now met, and taking it forward will be important to weaken adverse feedback loops between the stability of banks and sovereigns credibly.” A very clear passage from the head of the supervisory board and a clear call not to waste any more time since the deposit guarantee scheme “remains a key pillar of the banking union.”

The watchwords are stability and solidity against a backdrop of uncertainty and unpredictability. Buch recalls how the COVID-19 pandemic, the energy repercussions of the Russian-Ukrainian conflict, and high inflation “have exposed European economies to unforeseen challenges.” An emphasis that is not accidental since geopolitical events, especially adverse ones, “differ from more traditional risk factors because they are highly uncertain and insufficiently reflected in historical data.” However, Buch explains, “they transmute into greater credit, liquidity, market and operational risks, for example, by disrupting value chains or the provision of third-party services.” 

Hence comes the advice for the banks to “take into account uncertainties in their capital planning” and even consider “reevaluating their geographic exposures and outsourcing strategies.” For governments, the call to enact EDIS once and for all, considering that project and debate have been dragging on for nearly a decade.