Frankfurt, Brussels, Berlin Eurogroup boss Paschal Donohoe had to take a lot of criticism last week for his proposal to introduce a European deposit insurance. But now he is getting support from two prominent representatives from the German financial sector. The private banking association BdB and Raisin, one of the best-known German fintechs, are campaigning for the controversial project.
Raisin operates the platforms Weltsparen and Zinspilot, through which German savers have parked a lot of money at banks in other EU countries. “German consumers in particular would benefit from the increased level of protection of an EU-wide deposit insurance, because they have always invested disproportionately large amounts of money in accounts in other EU countries,” Raisin boss Tamaz Georgadze told the Handelsblatt.
This capital export is of a structural nature. “More savings are being made in Germany. are in demand than loans,” emphasizes Georgadze. “This is also why the interest rates offered by the local banks are comparatively low.” Raisin would benefit from a European deposit insurance (Edis). After all, investors would then have less to worry about that their savings at a bank in another EU country would be at risk if the bank got into trouble and the national deposit guarantee system was overwhelmed.
However, Edis would also strengthen the stability of the entire financial system, because it reduces the risk of bank runs, argues Georgadze. “Even a solid bank can hardly compensate for mass withdrawals of money.” They could spread to other markets “and shake the financial system.” . They can only be avoided with a stable deposit guarantee system that is credible even in times of crisis.
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“If a Portuguese saver knows in the next crisis that German and Dutch banks are also protecting their money, the likelihood that they will empty their account decreases.” Banks pay, Georgadze considers unfounded.
“In Germany people save more than there is a demand for credit.”
(Photo: ullstein bild – Lengemann/WELT)
“The German banking sector is not the benchmark in Europe either in terms of profitability, equity base or the stress tests of the European Banking Authority – rather the opposite.” have so far had fewer funds than the liability pots in many other EU countries.
Donohoe: “The room for change is very small”
As early as 2015, the EU Commission presented a first proposal for a European deposit insurance scheme. From their point of view, this is indispensable for the completion of the banking union, alongside joint supervision and processing.
“Eurogroup boss Donohoe’s plans to bring momentum to the banking union are the right ones,” says BdB chief executive Christian Ossig. Banks in Europe are currently active in 27 different markets. “That has to change.” At this point, Ossig sees room for improvement in Donohoe’s advance. “On the crucial point of market integration, the proposal by the head of the Eurogroup is still too vague and falls well short of our expectations.”
Donohoe proposed a so-called two-stage model in early May. In the first phase, the European deposit insurance fund is to be gradually filled with capital. National deposit protection funds should be able to borrow money from this if they reach their limits in crisis situations.
Joint liability is only aimed at in a second phase, which should start in 2028 at the earliest. In addition, banks should meet strict requirements by then and, for example, reduce the proportion of government bonds from their home country in their own balance sheets.
Completing the Banking Union will provide “a higher level of financial protection for Europe’s households and businesses, boost confidence and strengthen financial stability”. These are “necessary prerequisites for growth and reforms,” argues the head of the Eurogroup in a position paper that he distributed among the members of the currency union. The document is available to the Handelsblatt.
Fierce opposition to Donohoe’s compromise proposal on deposit insurance is building in the Treasury Department.
(Photo: imago images/photothek)
However, Donohoe was sharply criticized for his initiative in a video link by the finance ministers last week – and made a helpless impression at the subsequent press conference. Many participants had asked for changes, said the Irishman. But it is already a carefully balanced compromise. “The scope for further changes is very small. Any change would make an agreement more difficult.”
The biggest differences of opinion are between Germany and Italy. The federal government wants to prevent German savings deposits from being used as collateral for poorly managed banks in other European countries.
The government in Rome, on the other hand, is bothered by the high fines that banks are supposed to transfer to the joint deposit insurance if they have too many government bonds from their country on their books. This problem is particularly pronounced in Italy. Many of those involved consider it unlikely that these two extreme positions can be brought together.
BdB rejects exceptions for savings banks and cooperatives
Donohoe intends to present a slightly modified draft by the next Eurogroup meeting on May 23. In doing so, minor points of criticism should be addressed in the first place. For example, some countries are opposed to the suggestion that major European banks could more easily move their capital back and forth between headquarters and their foreign subsidiaries. Governments that do not have their own major banks in the country want guarantees that the foreign central banks will not suddenly withdraw capital from the subsidiaries in their country in a crisis.
However, Germany does not want to be satisfied with small changes. The traffic light coalition is only prepared for a reinsurance system in which national security systems support each other in emergency situations. She rejects joint liability for savings deposits.
Germany does not like the fact that Donohoe’s proposal already shows the way to joint liability – even if the governments still have a veto before phase two. In Berlin there is a fear that once the first phase is approved, the momentum will become unstoppable.
Berlin also sees the interests of the German savings banks and cooperative banks as not yet sufficiently safeguarded. In addition, the federal government insists that the risks arising from the overweighting of their own government bonds in the balance sheets of southern European banks must be reduced more quickly. This, in turn, is in direct conflict with Italy’s interests.
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The savings banks and cooperative banks, which protect savings deposits with their own security systems within their associations, do not want to take part in a European solution. However, the fact that they exclude a large part of the German banking market from Edis is likely to be unacceptable for most other EU countries.
The German private banks also reject exceptions for savings banks and cooperative banks. A uniform European set of rules must also apply to all banks for reasons of competition, says BdB general manager Ossig. “We therefore reject exceptions for European institutional guarantee schemes, also from a uniform European deposit insurance.”
Despite all the disputes, Donohoe has not yet given up hope of an agreement – and gives three arguments for this: First, the heads of government themselves have announced the goal of reaching an agreement by the EU summit in June. Second, it is easier to act now, before economic uncertainty gets even bigger.
And thirdly, it is currently only a question of agreeing to a timetable. Significant changes to the content are only planned for a second phase, before which governments can still veto.
More: A new attempt at European deposit insurance – the federal government is up in arms