Wednesday 13 November 2019

EU banking union will not guarantee Irish deposits

Donal O'Donovan

Donal O'Donovan

THE European banking union will not include a euro-wide deposit guarantee covering Irish banks, officials said last night.

Irish deposits will be guaranteed by an Irish fund set up specially for the purpose, European internal-markets commissioner Michel Barnier said.

A planned European bank system, announced on Wednesday, will see the European Central Bank (ECB) assume responsibility for supervising 6,000 eurozone banks, starting from the end of next year.

The plan is to co-ordinate control of banks across the eurozone. The hope is to rein in loose lending.

As well as oversight, it calls for a shared system for shutting failed banks, known as 'resolution'. In addition, there is to be a co-ordinated deposit-guarantee scheme to cover money kept in every eurozone bank. The final step is seen as crucial in restoring the ability of banks across the single currency to raise money from depositors.

However, Mr Barnier, who is the driving force behind the bank plan, said the guarantee scheme in each country would remain self-financing.

If a national fund cannot meet the full cost of a payout, it will be able to borrow from similar funds in other countries but will have to repay that debt over time, he said.

This means that the banking union stops short of so-called 'fiscal transfers', where money would flow within the euro system according to where the need arises -- rather than where the money comes from.

Such fiscal transfers are seen as politically sensitive in wealthier countries, notably Germany, where there are fears that it could reinforce rather than stop indiscipline.

Transfers

Despite the rescue bill staying national, Mr Barnier said that under his plan taxpayers would not be hit when lenders failed.

Instead, the guarantee scheme in each country would be funded with a levy on banks. That is already the case in Ireland under new legislation that was introduced last year.

However, those funds will take years -- or even decades -- to reach the scale needed to finance bank rescues, even of mid-sized lenders.

In the meantime, taxpayers may well have to shoulder the burden.

Irish Independent

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