On track for finalizing EDIS and the banking union?

ABBL Published 08.11.2019

Ever since Olaf Scholz, the German Minister of Finance published his Financial Times article about the way forward regarding the European Deposit Insurance Scheme, there have been quite a number of comments and a bit of – often guarded – optimism. So, what is it all about and why are these comments considered significant?

Let’s start with the beginning. The European Deposit Insurance Scheme – in short “EDIS” – is, after the European banking supervision and resolution mechanisms, the third major leg or pillar of the Banking Union. The intention of the 2015 Commission proposal is to put a European guarantee on the 100 000 euro guarantee each deposit holder in a bank already nowadays enjoys. This involves a solidarity between the existing national deposit guarantee schemes. While some Member States are rather keen on such a European element, others, in particular Germany or the Netherlands, are more guarded, arguing that the banking systems in various other national jurisdictions is on a shakier ground and first needs to be propped up by restorative measures. Following the introduction of the Commission proposal, negotiations around EDIS were put on hold in anticipation of a number of measures collectively called the Risk Reduction Measures (RRM) or the Banking Package to be agreed upon. In the European Parliament, the Dutch center right MEP in the lead on the report on the EDIS regulation, Esther de Lange, agreed to this way of proceeding. Since then, the RRM package has been agreed upon and the Council ad hoc high-level group has met a few times – absent any significant breakthrough. The old dividing lines have proven resilient.

What did Olaf Scholz say in his op-ed article on 6 November in the FT? In a nutshell: in order for the European financial system to stay relevant, both the Capital Markets Union and the Banking Union need to be completed. To quote the German finance minister on EDIS: “the deadlock has to end”. In order to get there, he has come up with four conditions:

  • Common European insolvency procedures for all banks (not only the systemically relevant ones falling under the Bank Recovery and Resolution Directive) and “deeper integration of EU banking groups”.
  • Reducing the number of non-performing loans (NPLs) and introducing capital requirements reflecting actual risks of sovereign bonds.
  • Changing the plans from a European Deposit Insurance Scheme to a reinsurance scheme with a final involvement of the relevant Member State once the national DGS and the European deposit insurance fund have been depleted.
  • Introducing “uniform taxation of banks in the EU” via a common tax base and a “minimum effective tax”.

These conditions will not be easy for all other Member States to accept. The Italian Finance Minister knows the EDIS proposed regulation well from his time as chair of the European Parliament’s ECON committee. He has immediately criticized the sovereign bond condition, which he considers would hamper his country’s access to finance and would put European banks at a competitive disadvantage to third country competition. Host countries will probably want to have a closer look at what “deeper integration of EU banking groups” would mean in a resolution context while other Member States might have find themselves at odds concerning a common tax base and minimum taxation for banks. The above conditions may have imported old fault lines from other debates into the EDIS project. Nevertheless, Olav Scholz’ comments have the merit of revitalizing a debate that had lost its dynamic.

The Euro chair group Mario Centeno summed up as follows his impression after yesterday’s (7 November 2019) meeting:

“I sense a new mood in the room, and I hope that next month we will be able to agree on a roadmap to start political negotiations on this very important file.”

Another element that could feed into any fragile and cautious optimism is the perspective of the approaching German Presidency of the Council on 1st of July next year. The Federal Republic knows that during its Presidency, it will hold the pen in negotiations between Member States all the while having to show restraint in furthering their own national interest. The time is now to come out openly with their own views if they would like to get an agreement by the end of their term in December 2020.

By Antoine Kremer, ABBL & ALFI Head of European Affairs 

Contact

Association des Banques et Banquiers, Luxembourg

Address

12, Rue Erasme L-1468 Luxembourg

Phone Fax
Opening hours

Monday to Friday from 8:00 to 17:30.