Publication date: 16 March 2016
The European Banking Federation (EBF) supports the creation of the Banking Union and the objectives of breaking the nexus between sovereigns and banks and overcoming the remaining fragmentation within the Banking Union.
As long as national governments are back-stops to banks, a perceived link between banks and sovereigns will remain. The EBF supports the principle of an EDIS as the third pillar of a fully completed and harmonious Banking Union.
While the EBF agrees that an EDIS mechanism is appropriate, the design and timing will have to be carefully considered to ensure it follows a strict order of priorities, allowing enough time and being contingent on all participating Member States overcoming their differences at national level. The EDIS proposal should be carefully reviewed to take into account the harmonisation process within the current legal framework of the Banking Union to allow an EDIS to be set up without compromising best practices and the level playing field in the European Single Market and the Banking Union.
EBF Members favour a step by step approach allowing more time and consideration for the subsequent steps. An evolution towards an EDIS should be dependent on certain prerequisite milestones being clearly defined, legislated and implemented. In terms of sequence the EBF urges that EU Institutions firstly:
- Give clear priority to achieving a level playing field by further harmonising banking regulation especially with respect to transposition and implementation of DGSD and BRRD;
- Conduct a comprehensive public stakeholder consultation and impact assessment to determine the appropriate design, calibration and evolution of an EDIS;
- Identify and address any remaining significant risks on banks’ balance sheets in the Banking Union not yet subjected to the ECB’s Asset Quality Review (AQR).
The consideration for a step-by-step evolution towards an EDIS must be based on a prior in-depth analysis and impact assessment taking into account the impacts of the new financial regulatory environment and financial stability framework in the EU and Banking Union which have led to a significant reduction of the level of potential losses to insured depositors (notably the introduction of resolution planning, bail-in and depositors’ preference). Thus, cost neutrality is an essential condition for the political acceptability of the EDIS and there should be no overall increase in individual contributions to deposit insurance (i.e. at national or Banking Union level). In this regard, our view is that the proposed target level in the DGSD should be re-assessed, to evaluate if a target level of 0.5% –as already foreseen in the DGSD under certain conditions– may be more appropriate than the current 0.8% of covered deposits.
The EBF would like to outline in further detail the first steps that need to be taken towards an EDIS, as well as key principles and fundamental features that should be taken into account when designing and calibrating an EDIS.