At the beginning of the year, and according to the established rotation, Portugal took the helm of the European Union, assuming its Presidency for six months. Among its priorities was stimulating the completion of the Banking Union. To this end, it took up the baton from the Austrian presidency regarding the creation of the European deposit guarantee scheme and thus unblocked negotiations around the construction of this third and final pillar of the much-desired Banking Union.
Much has happened since then; let us proceed step by step. The Portuguese Presidency promoted a European deposit protection model based on the coexistence of national funds and a European fund administered by a Community body, the so-called hybrid model. The different systems—national and European—would be linked by a mandatory lending regime in case of liquidity needs for any of them, but without risk mutualization. Consequently, the Commission’s working groups were activated with a new proposal on the table and resumed previous discussions that had been abandoned due to lack of consensus. Although for some Member States this new proposal still seems like a maximum concession and for others a minimum, it at least allows a certain compromise between countries to be glimpsed—something new on this issue and, without doubt, positive.
As a parallel exercise to the work of the technical groups, this same week the deadline expired for submitting comments to the European Commission’s consultation published at the beginning of the year regarding the review of the framework on crisis management in financial institutions and depositor protection. This consultation, in addition to proposing the revision of the resolution framework for institutions, includes a final chapter on the protection of European depositors and, among other topics, seeks participants’ opinions on this hybrid deposit guarantee model. Compiling, under a single consultation, a resolution framework for banking institutions—which we seem unable to fully implement—with a necessary third pillar of the Banking Union—which has many detractors—is, without doubt, a good move by the European Commission. Because we cannot deny that the relationship between one issue and the other is evident: the most important objective of any depositor protection system is the coverage of their savings when a banking crisis occurs.
The Spanish position on the construction of a common European deposit guarantee fund is already well known: full support for a European system (EDIS) that, when necessary, would assume as its own losses the disbursements it would have to make to guarantee the deposits of any citizen of the European Union. EDIS would be funded by all banks in the Union—not by the different national deposit guarantee funds—to which they would contribute according to the risk assumed by each of them individually.
The defense by Spanish banks of a genuine European deposit guarantee system is fundamentally based on two objectives. The first is to achieve the definitive elimination of the bank-sovereign nexus, that is, that the guarantee of bank deposits does not depend on national funds and, therefore, on the greater or lesser strength of the sovereign backing them. The second, and no less important, is to equalize protection for all depositors within the European Union, regardless of the country where their bank is located.
With a constructive spirit and a desire to resume discussions around a European deposit protection system, the Spanish banking sector welcomes this new approach and supports the creation of a system that begins as—and here is the key—the hybrid model proposed by the Portuguese Presidency, based on a mandatory lending system. But it is equally important that the Portuguese approach be only a first step toward future loss mutualization, and that a work plan be designed in which national deposit guarantee systems and funds progressively lose weight in favor of a European body.
Closing the Banking Union with a mere lending system between national funds does not satisfy our ambition. And there is an evident risk that countries that do not wish to share resources—and, where applicable, losses—will force the completion of the third pillar of the Banking Union with this system and consider the discussion concluded.
We are at a key moment when discussions appear to be unblocking. In its response to the Commission’s consultation, the Spanish banking sector has made an effort to convey the importance of this system, yet to be defined, meeting the minimum requirements to equalize the protection of all depositors in the European Union regardless of the country where their bank is located and to separate this protection from the link with the sovereign. We must not settle for the hybrid model proposed to put the finishing touch on the Banking Union. For that journey, as the most Castilian would say, no saddlebags are needed.
Carmen Rizo, Public Policy Advisor at the Spanish Banking Association (AEB)
