Handelsblatt Exclusive

E.U. to Pursue Deposit Guarantee Plan

Wolfgang Schaeuble German finance minister Dutch counterpart Jeroen Dijsselbloem March 2016 Brussels source Olivier Hoslet dpa 56079200
German Finance Minister Wolfgang Schäuble says it was the right time to begin sanctions proceedings. Critics accuse the E.U. of double standards.
  • Why it matters

    Why it matters

    A Europe-wide deposit protection plan could raise banking costs in some E.U. countries, for instance in Germany, as their banks become liable for financial bankruptcies across the Continent.

  • Facts


    • Guarantees for European savers are currently based on national deposit insurance funds.
    • The European Commission has long had plans to replace national funds with a single European scheme, known as EDIS, by 2024 following the financial crisis of 2008-2009.
    • German business, banks and politicians are all strongly opposed to a European deposit protection plan, which they see as putting German savings at risk.
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Plans for a European Deposit Insurance Scheme, or EDIS, are moving ahead, despite determined opposition from the German finance minister, Wolfgang Schäuble.

The scheme, designed in reaction to the European bank insolvencies in 2008 and 2013, will pool the risks of a bank failure across all the 28 nations of the European Union, meaning German banks could pay up, for instance, to protect Greek deposits up to €100,000, or $112,720, in case a bank collapsed in the Mediterranean country. Currently, deposit protection plans only exist at a national level.

At this coming Friday’s meeting of the 28-member European Union’s Economic and Financial Affairs Council, known as Ecofin, Jeroen Dijsselbloem, the current chair of the council, will push ahead with the controversial plans, Handelsblatt has learned from a document prepared by his office.

According to the 10-page report, Mr. Dijsselbloem, who is also the Netherlands’ finance minister, will ask his E.U. counterparts at the meeting in Luxembourg to approve a schedule for legislation to implement the European Deposit Insurance Scheme.

A number of E.U. member states intend to clearly reject the draft directive on EDIS.

Mr. Dijsselbloem’s plans have alarmed Mr. Schäuble, who would ideally prefer to remain silent on the question of EDIS. The scheme, which is intended to subsume current national deposit insurance schemes under a single European protection plan, is extremely unpopular in Germany.

Many German savers fear that they will end up bailing out unstable southern European financial institutions. German savings banks and cooperative banks have also spoken out vehemently against the proposed scheme.

The Netherlands is generally seen as sharing German misgivings over the E.U. plans on deposit insurance schemes, but as chair of the European finance ministers’ council, Mr. Dijsselbloem’s hands are tied: instead of representing national interests, his job is to make compromises based on views across the European Union as a whole.

So Mr. Dijsselbloem has to pay attention to southern European states, the European Commission – the E.U.’s executive body – and the European Central Bank, all of which strongly support a Europe-wide system guaranteeing savers €100,000 in the event of bank failures.

All this is putting pressure on Mr. Dijsselbloem, who has included a first concrete date in his progress report. According to the report, “negotiations with the European Parliament” are to be “prepared,” during the second half of this year, when the rotating E.U. presidency will be held by Slovakia.  This would bring the European deposit insurance scheme a lot closer to legislative realization before the end of 2016.

This is exactly what Mr. Schäuble does not want, as he has this made clear in European finance minister meetings. A number of E.U. member states intend to “clearly reject” the draft directive on the savings protection scheme, according to Mr. Dijsselbloem’s report.

These opposing countries are Germany and Finland. However, the two states lack the political weight in Ecofin to stop plans for the deposit insurance scheme.

Mr. Schäuble has been unable to prevent meetings of an EDIS working group, set up by E.U. finance ministers. The group has met nine times since the beginning of 2016, and has already taken several “provisional” majority decisions, according to Mr. Dijsselbloem’s report.

A European deposit protection scheme does seem likely to happen, although probably in a form much reduced from the original plans. In its draft directive, the E.U. commission proposed a far-reaching European scheme: between 2020 and 2024, national deposit insurance schemes should be subsumed into a single European deposit protection fund.

In recent weeks, French banks have come out in opposition, joining their German counterparts. Last week, the French banking industry body said that a mutual reinsurance scheme between the various national deposit protection funds should be adequate.

In the eyes of the E.U. commission, this kind of reinsurance arrangement is meant only to be a transitional arrangement on the path to full integration of deposit insurance schemes.

“A European deposit insurance fund could quickly be overwhelmed, putting savers in all countries at risk.”

Uwe Fröhlich, president of the Federal Association of German Cooperative Banks

There is also a strong strand of opinion which thinks that any E.U.-wide deposit insurance scheme will need unanimous approval from all 28 member states, rather than simply a “qualified majority,” as proposed by the European Commission.

For Mr. Schäuble, that would mark a significant victory, allowing him and his allies to veto any version of the scheme they find unacceptable.

Mr. Schäuble has no shortage of domestic support in his opposition to the deposit protection proposal. A broad coalition of German opinion is firmly against any Europeanization of deposit insurance schemes. This includes much of the financial industry, the German central bank, and small and medium-sized businesses, as well as many parliamentarians.

A typical position is that of “AG Mittelstand,” a body uniting industry groups from Germany’s powerful medium-sized business sector, representing more than 3.7 million companies. Recently, the organization unequivocally condemned plans for the European deposit plan, warning that “risks are being redistributed and false and irresponsible economic incentives are being created.”

Germany’s banking sector is equally opposed. “Given the high levels of non-performing loans in a number of countries, a European deposit insurance fund could quickly be overwhelmed, putting savers in all countries at risk,” said Uwe Fröhlich, president of the Federal Association of German Cooperative Banks.

German financial institutions point to systemic problems with the proposed EDIS system. Before a common deposit insurance scheme can be implemented, they say, a standardized bank resolution system must be in place, and guidelines on the reorganization of failing banks have to have been shown to work.

It is also unacceptable, they add, that balance sheets continue to rate sovereign bonds as risk-free, thus requiring no backing with equity capital. If this were to continue, German savers could end up being responsible for banks which lend too much to weak states.

German political opposition to EDIS is also strong. In February 2016, the parties of Chancellor Angela Merkel’s ruling coalition, made up of her center-right Christian Democrats and the center-left Social Democrats, passed a joint parliamentary motion mandating the German government to oppose the European Union’s EDIS plans.

“The sharing of bank risks through a common European deposit insurance scheme will not create trust in the safety of European savings. They will not contribute to the stability of the banks,” was one clause in the motion.

German parliamentarians would prefer to achieve a lasting reduction in the risks to which banks and states mutually expose each other. In addition, by no means all European states yet have a functioning deposit insurance scheme.


Ruth Berschens heads Handelsblatt’s Brussels office, leading coverage of European policy. Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy managing editor of Handelsblatt’s Berlin office. Frank Drost is a Handelsblatt Editor in Berlin, covering financial supervision and banks. To contact the authors: berschens@handelsblatt.com, hildebrand@handelsblatt.com and drost@handelsblatt.com.

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