While existing EU institutions were always unlikely to implement a common deposit-guarantee system on their own, the formation of a European banking union will naturally lead to such a scheme. Europe’s leaders should begin to prepare for this eventual outcome – and the political leap that will be needed if it is to succeed.
TILBURG – While existing European Union institutions were always unlikely to implement a common deposit-guarantee system (DGS) on their own, the formation of a European banking union will naturally lead to such a scheme. Europe’s leaders should begin to prepare for this eventual outcome – and the political leap that will be needed if it is to succeed.
To this end, countries should go further in harmonizing national DGSs, including areas that have been neglected so far. For example, optional deposit insurance is not needed, nor is any other optional element that induces divergences in national DGSs.
Moreover, absolute protection for all deposits up to an ex ante threshold – say, €100,000 ($133,000) – should be firmly anchored within EU legislation. In order to avoid a repeat of recent events in Cyprus, where a one-time tax on both large and small savers was put on the table as a means to help fund a bailout of the country’s financial system, the rigidity of this guarantee should be communicated clearly to countries.
TILBURG – While existing European Union institutions were always unlikely to implement a common deposit-guarantee system (DGS) on their own, the formation of a European banking union will naturally lead to such a scheme. Europe’s leaders should begin to prepare for this eventual outcome – and the political leap that will be needed if it is to succeed.
To this end, countries should go further in harmonizing national DGSs, including areas that have been neglected so far. For example, optional deposit insurance is not needed, nor is any other optional element that induces divergences in national DGSs.
Moreover, absolute protection for all deposits up to an ex ante threshold – say, €100,000 ($133,000) – should be firmly anchored within EU legislation. In order to avoid a repeat of recent events in Cyprus, where a one-time tax on both large and small savers was put on the table as a means to help fund a bailout of the country’s financial system, the rigidity of this guarantee should be communicated clearly to countries.