European wide scheme for deposit insurance proposed

The European Commission on Tuesday proposed a euro-area wide insurance scheme for bank deposits, which would ensure that all retail deposits in the European Union enjoy an equal level of protection.

Currently, Irish savers who have their money deposited with an Irish bank are protected up to a maximum of €100,000, and this will remain under the new scheme. Those who have their savings outside the euro area, such as with a UK bank, are currently protected up a total of £75,000 (€106,972) under the UK regime.

The new euro-area fund will be financed directly by bank contributions, and will be run by the existing Single Resolution Board.

"The Commission's proposal for a European Deposit Insurance Scheme builds on national deposit insurance schemes and would be accessible only on the condition that commonly agreed rules have been fully implemented. In parallel we need to take further measures to reduce risks in the banking system. We must weaken the link between banks and sovereigns, and put into practice the agreed rules whereby taxpayers should not be first in line to pay for failing banks," vice-president Valdis Dombrovskis said.

The scheme envisaged will be introduced in three stages. First, a reinsurance of national Deposit Guarantee Schemes (DGS) will run until 2020. During this phase, a country will only be able to access EDIS funds when it has exhausted its own resources, and only if the relevant rules have been fully applied.

Then it will move to a co-insurance scheme, in which the contribution of EDIS will progressively increase over time (starting at 20%). At this point, a national scheme would not be required to exhaust its own funds before accessing EDIS funds.

By gradually increasing the share of risk that EDIS assumes to 100 per cent, EDIS will fully insure national DGS as of 2024. This is the same year when the Single Resolution Fund and the requirements of the current DGS Directive will be fully phased in.

The Commission said that the scheme will be “cost-neutral” to banks, and will be risk-weighted; riskier banks will pay higher contributions than safer banks, and this will be strengthened as EDIS is introduced gradually.