Progress on Banking Union: EU Discusses Next Steps

Written by | Friday, November 13th, 2015

The European Commission has recently held an orientation discussion about the next moves needed to complete the Banking Union, which is an indispensable part of finalizing a full and deep Economic and Monetary Union (EMU). The outlined steps include for example a move towards guaranteeing deposits at the European level with a European Deposit Insurance Scheme (EDIS). EDIS would be a landmark move forward in terms of strengthening financial stability by reducing the relationship between the banks and the sovereigns. Moreover, it would also boost overall confidence by protecting citizens’ deposits at the European level, regardless of the location of their bank in the Union.

Valdis Dombrovski, Vice-President for the Euro and Social Dialogue, emphasized that “financial stability is a precondition for economic growth and convergence.” Therefore, it is the EU’s priority to finalize the Banking Union as one of the pillars of a resilient and dynamic Economic and Monetary Union. “Today’s discussion in the Commission demonstrates our commitment to propose first steps towards an EU Deposit Insurance Scheme already this year. In parallel, we will work on further reducing risks in the banking sector,” he added.

A proposal for EDIS is expected to consist of a reinsurance of national Deposit Guarantee Schemes (DGS) that should then move towards a full European system of deposit guarantees in the longer term. While national DGS are already in place and provide for the protection of €100.000 per person/per account per bank, they are not yet covered by a common European scheme. EDIS is believed to reinforce depositor confidence in financial institutions across the Banking Union. As a result, pressure on banks should be reduced and the loop between banks and Member States would be even more weakened to ensure that all national DGS have enough funding to withstand periods of heightened stress in the financial sector.

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