Euro central bankers renew call for common deposit insurance

FRANKFURT (Reuters) - Four top euro zone central bankers have renewed their call for a common insurance on bank deposits in the bloc, but met resistance from Germany and the Netherlands.

FILE PHOTO - European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany July 20, 2017. REUTERS/Ralph Orlowski/File Photo

The central bank governors of Finland, Spain and Lithuania, as well as the deputy governor of the French central bank urged European governments to create the long-delayed European Deposit Insurance Scheme (EDIS), designed to cover savers up to 100,000 euros ($115,000) in case of a bank collapse.

European Union leaders failed to reach agreement on setting up EDIS at a summit in June, partly due to German opposition, and left this and other difficult issues like a euro zone budget for an undetermined future.

“Confidence in secured bank deposits should be uniform throughout the euro area,” Finnish central bank governor Olli Rehn said in comments published on Tuesday in the Eurofi Magazine.

“A common European deposit insurance scheme would ensure this, even in severe crises.”

The comments were published ahead of a Eurofi banking conference in Vienna this week on the sidelines of a European finance minister’s meeting.

EDIS is the main missing part of the European Union’s response to the financial crisis of 2008-12, which has seen the European Central Bank become the euro zone’s top banking watchdog.

However, cash-rich banks in countries such as Germany fear they would end up propping up weaker rivals in other EU states and have warned about the dangers associated with sharing losses.

“An obvious one is the introduction of moral hazard for policymakers,” Karl-Peter Schackmann-Fallis of Germany’s association of savings banks said in the magazine.

Dutch governor Klaas Knot said euro zone banks needed to shed risks such as excessive exposure to government debt and high stocks of unpaid loans before a common insurance could be introduced.

Bad loans inherited from the last recession are still a major problem in Italy and other southern European countries but their amount has fallen substantially over the past two years as a result of pressure from the European Central Bank and stronger economic growth.

France’s deputy governor Sylvie Goulard said “substantial risk reduction” had taken place and called for a compromise on EDIS based on an already watered down European Commission proposal from last year, which left the burden largely with member states.

Bank of Spain chief Pablo Hernández de Cos echoed Goulard’s comments and also warned against charging banks for holding sovereign bonds as a way of breaking a doom-loop between lenders and their national government.

“The best way to tackle this problem is to... continue strengthening banks’ resilience in order to prevent that stress in the banking sector spreads to the sovereign,” de Cos said.

Lithuanian central bank governor Vitas Vasiliauskas also argued in favor of EDIS, while also saying the ECB should be involved in supervising big EU banks even if they are not in the euro zone.

Two of the biggest banks in Lithuania, AB SEB and AB Swedbank, are part of Swedish groups, which are outside the remit of ECB supervision.

Reporting by Francesco Canepa and Balazs Koranyi; Editing by Jane Merriman and Susan Fenton