Business World

Thursday 26 April 2018

EU bows to Germany with weaker banking union plan

'To convince Germany, the Commission has put forward a plan that reduces the sharing of banking risks and eyes stricter conditions that states must meet before their banking sectors can access safety nets funded at EU level.' Stock picture
'To convince Germany, the Commission has put forward a plan that reduces the sharing of banking risks and eyes stricter conditions that states must meet before their banking sectors can access safety nets funded at EU level.' Stock picture

Francesco Guarascio

The European Commission yesterday proposed softened measures to strengthen the EU banking sector against future crises, after two years of fruitless talks among the 28 EU states on more ambitious plans.

The watered-down proposals are designed to win over Germany, the staunchest opponent of sharing banking risks among EU states, but they were quickly dismissed by the German banking lobby.

The proposals could also create frictions with the European Central Bank (ECB) over the pace of reduction of banks' exposure to bad loans.

Germany's outgoing finance minister, Wolfgang Schaeuble, has repeatedly raised concerns that sharing risks would mean richer German banks propping up weaker rivals in other EU countries, such as Italy, Portugal or Greece.

To convince Germany, the Commission has put forward a plan that reduces the sharing of banking risks and eyes stricter conditions that states must meet before their banking sectors can access safety nets funded at EU level.

The new plan dropped earlier proposals for full EU-sharing of the cost of protecting savers in the event of a bank failure.

Instead, the financial burden will now be largely with individual member states.

EU rules guarantee all deposits up to €100,000, a provision meant to strengthen confidence in the banking sector after a decade-long crisis that has seen the bailout of several top banks in the bloc. But existing national schemes to insure depositors are considered insufficient for a major banking crisis.

An EU backstop, funded by all banks in the bloc, is regarded as the best guarantee to protect savers and increase market confidence.

Under the new proposals that the Commission wants agreed by next year, a European Deposit Insurance Scheme (EDIS) would intervene only after national insurance schemes have fully used their resources to rescue depositors.

But the German banking lobby DK said the plan was "only a marginal advance" and urged measures to clean weak banks' balance sheets before the launch of the scheme's first phase. (Reuters)

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