• Wed. May 29th, 2024

EU plans for 100,000 euro bank deposit insurance causing controversy

Byeditor

Mar 26, 2024

Bank chairman Willi Cernko and Johannes Rehulka, general secretary of the Raiffeisen Association, are issuing a warning about a potential weakening of the deposit protection system that has been in place for years. This system determines how failing banks should be handled in the future and who will ultimately bear the costs in the event of bankruptcy. They stress the importance of maintaining the current deposit insurance amount of 100,000 euros per customer and bank to protect savers and ensure financial market stability.

While the Ministry of Finance acknowledges the need to reinforce the banking sector’s resilience at the EU level, they emphasize that strict bail-in regulations should be upheld to ensure that creditors and owners bear the brunt of losses and costs. The Austrian deposit insurance system aims to safeguard secured savings deposits and has been successful in the past, a model that should be preserved going forward.

The issue at hand lies with recent developments in the EU Parliament, where policymakers are considering expanding the use of deposit insurance funds, which could potentially undermine owner and creditor participation in the event of bank failures. The proposed changes also threaten to remove the preferential treatment of deposit protection in insolvency cases, making it harder for banks to recover from losses. This debate arises from the need to improve the resolution process for banks, especially smaller ones, and the push to enhance EU resolution laws in this regard.

One contentious proposal that is unlikely to materialize soon is the idea of a single EU deposit insurance pool, where banks from different countries would contribute to cover bankruptcies across the EU. This concept faces political resistance due to concerns about cross-border financial obligations and sovereignty. Overall, the debate surrounding the future of deposit protection in the banking sector reflects the complexities of balancing financial stability, creditor accountability, and depositor safeguards in a rapidly changing regulatory landscape.

By editor

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