On 17 February, APCO Worldwide in Brussels held a breakfast roundtable on the European Deposit Insurance Scheme (EDIS). Our distinguished speakers were: Patrick Pearson, Head of Unit at the European Commission in charge of the EDIS; Elisa Ferreira MEP, the S&D shadow rapporteur on the EDIS; Timo Löyttyniemi, Vice-Chair of the Single Resolution Board; and Dirk Cupei, Chairman of the European Forum of Deposit Insurers. They were joined by Markus Ferber MEP, Peter Simon MEP, and representatives from many banks around Europe. Below is APCO’s opinion on where the EDIS debate currently stands and what the likely way forward is.

The EDIS is set to gain traction now that the proposal has reached the European Parliament (EP), with a report by rapporteur Esther de Lange, a Dutch Member of the EPP, due by the end of the summer. Fault lines have already emerged, with Germany in particular putting the full weight of its diplomatic and political power into blocking the EDIS unless they secure wide-ranging concessions.

Three broad camps seem to have emerged, each with a particular “take” on the EDIS:

The Drivers

The European Commission sees the EDIS as an absolute necessity for the completion of the Banking Union, and something that can balance risk reduction with risk sharing. Ideally for the Commission, the EP will be swift in producing a report largely in line with the Commission’s proposal, so that the implementation of the EDIS can start by mid-2017 and culminate in becoming fully operational in 2024. The Single Resolution Board (SRB) seems completely in line with the Commission and is ready to implement the EDIS along the Commission’s timeline. The SRB’s priority is to implement the national deposit guarantee directive and get the funding from the Member States for the EDIS fund by 2024. For the “Drivers,” the arguments in favour of the EDIS are clear and the 2017-2024 timeline is well synchronised with other key developments.

The Worriers

As it stands, however, the EDIS is not universally seen as a positive proposal. There are many German institutions and MEPs within the “Worrier” camp, along with significant numbers of large banks from France and other member states, and some national deposit guarantee schemes (DGSs). This loose coalition worries about at least four things:

  1. The EDIS could be a risk to the international and intra-EU competitiveness of Eurozone banks, adding another element to their provision-laden balance sheet.
  2. The EDIS could become a mutualizing system that ends up with large, stable Eurozone  banks “bailing out” weaker Eurozone banks. This has led some to propose that the EDIS should only apply to institutions supervised by the Banking Union’s SSM, as they at least should be reliable.
  3. The EDIS seems to create a moral hazard because it would incentivize national DGSs to limit pre-intervention (seen as the cheapest and most effective way of stopping a bank from failing). Waiting for a failure and a subsequent EDIS pay-out would be cheaper for them.

Timing also plays a large role for the “Worriers,” who want all Member States to transpose the DGS Directive before even starting with the EDIS. The SRB has stated that this should be achieve by summer 2016.

The Hopefuls

The Parliament has yet to turn its attention fully to the EDIS. However, while many MEPs think the EDIS is not irredeemably flawed, there is some agreement that the scheme could use improvement. These MEPs are joined by many Eurozone countries, especially southern ones, in thinking so. Collectively this group seems to find that the EDIS:

  1. Could enable Europe to further weaken the link between sovereigns and banks, reducing the chance of “doom loops” and “death spirals”;
  2. Could help the EU emulate positive aspects of the U.S. Federal Deposit Insurance Corp. and will be an essential tool to mitigate local shocks through risk sharing;
  3. Will further protect small depositors and prevent the taxpayer from having to bail out banks ever again

With member states such as Italy aligned within this camp, some “Hopefuls” aspire to push the EDIS through as quickly as possible. This is actually an area of disagreement with the Commission, whose members have a longer timeline in mind. That said, other “Hopefuls” want a delay to the start of the EDIS process but a faster ramp-up to the same 2024 date.

Despite such differences, this group broadly considers the Commission’s proposal as the minimum standard that needs to be achieved. There could, therefore, be interesting/worrying (choose your perspective) amendments aimed at boosting depositor and investor confidence, mitigating risk through enhanced risk sharing, etc.

What next?

Because interests are likely to remain unaligned, a long debate is expected -- and a mid-2017 EDIS start is unlikely. The “Worriers,” particularly Germany, will put up a strong fight in the Parliament, with key MEPs in the ECON Committee expected to try to water down the Commission’s proposal. The example of Banking Structural Reform (BSR) should be a warning for the “Drivers” that a deal will need to satisfy the “Worriers” and the “Hopefuls” alike if it is to have any chance at coming into force within a reasonable timeframe.

The European Council under the Dutch Presidency seems to be pushing hard for a common position in mid-June 2016. However, the European Parliament aims to draft a report for September 2016, with an exchange of views in October or November 2016, and a vote in the ECON Committee in January 2017. These dates can be subject to change.

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Theo Moore

Theo Moore is deputy managing director of APCO Worldwide's Brussels office and head of APCO's financial practice in Europe. Read More