European Deposit Insurance Scheme
The third pillar of the banking union is the harmonisation and reinforcement of deposit guarantee schemes (DGSs). These are the systems set up in each Member State to protect depositors and prevent mass withdrawals of funds in the case of a bank failure, which can pose a risk to financial stability.
The adoption on 16 April 2014 of Directive 2014/49/EU of the European Parliament and of the Council on deposit guarantee schemes was an important milestone in efforts to enhance depositor protection, as it reduced repayment deadlines to seven days and required schemes to have available financial means of at least 0.8% of covered deposits. This framework was transposed into French law in August 2015.
In 2015, the European Commission published a legislative proposal for the establishment of a European Deposit Insurance Scheme (EDIS), which would be financed by banking sector contributions (risk-weighted). Then in 2017, it published a communication proposing the creation of a “hybrid” model comprising two successive phases:
- Phase I: a re-insurance stage where national DGSs provide each other with liquidity support
- Phase II: a co-insurance stage where national DSG losses are progressively mutualised
Technical discussions are still under way on the project.
In 2021, the Governor of the Banque de France called for a new scheme, combining “(i) the well-known idea of a liquidity support scheme between national DGSs –and obviously ensuring that each of them is funded as expected – with (ii) a renewed approach, in which foreign subsidiaries would be affiliated to the home DGS.”
Most importantly, the credibiltiy of any deposit guarantee scheme requires access to a solid financial backstop. In the case of the euro area, the Four Presidents’ Report on the strengthening of the economic and monetary union proposed that the European Stability Mechnism could act as a fiscal backstop to the resolution and deposit guarantee authority.