ECB's Draghi renews plea for euro area deposit insurance

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FRANKFURT (Reuters) - European Central Bank President Mario Draghi renewed on Monday his call for a common bank deposit insurance scheme for the euro area after it was kicked into the long grass by the bloc’s leaders.

The ECB sees a European Deposit Insurance Scheme as crucial to underpinning depositor confidence in their bank across the currency bloc.

But European Union leaders failed to reach on agreement on the matter at a summit late last month, partly due to German opposition, and left this and other difficult issues like a euro zone budget for an undefined future.

“In the period ahead, including the deliberations on a European deposit insurance scheme, we should not be held back by the distinction between risk reduction and risk sharing,” Draghi told the European Parliament’s committee on economic affairs.

Germany has long opposed EDIS, arguing that it could be asked to foot the bill for bank failures in financially irresponsible euro zone member states.

Its central bank has made its backing for the scheme conditional on lenders in other countries reducing risks on their balance sheets, such as unpaid loans and large holdings of their country’s government debt.

But Draghi said that banks had already substantially reduced their piles of soured credit and other toxic assets, as well as raising their capital levels by 67 percent compared to 10 years earlier.

He also renewed his call to strengthen the euro zone’s bailout fund, or European Stability Mechanism, and for a “common stabilization function” to support the economy during euro-wide recessions.

“We therefore very much welcome the renewed impulse to this discussion,” Draghi said.

Reporting by Balazs Koranyi; Editing by Francesco Canepa/Marfk Heinrich