Deposit insurance proposals constitute disadvantage for Germany’s consumers and bankers
21.09.2010 by Finanzplatz München Initiative
Munich Financial Center Initiative (known by its German acronym of “fpmi”) has come out against the proposals currently being considered by the European Commission in the area of deposit insurance. These would beef up such schemes, and would harmonize them on the European level. The proposals would, however, worsen the position of Germany’s consumers, and would also constitute a substantial encumbrance for Germany’s banks. The harmonization proposals are, furthermore, flawed, as they fail to clarify issues of controlling and monitoring.
In the period following the incidence of the financial market crisis, the European Union promulgated alterations in its Deposit Insurance Directive. These alterations comprised increasing on an EU-wide basis the amount of deposits guaranteed to €50,000. This is to be followed in 2011 by a further increase to €100,00. fpmi hailed the proposals. The Initiative rejects, however, the current ones, which strive to achieve a Europe-wide harmonization of deposit insurance, as not being efficacious. Germany’s system offers consumers the highest level of protection possible. This system is comprised of the guarantees of operation provided to the country’s savings banks and to its credit unions, and of the unlimited levels of deposit insurance accorded to depositors by Germany’s privately-owned banks. The ceiling of €100,000 proposed by the EU would thus be substantially below the level of protection currently provided by Germany’s system. The new proposal would not permit Germany’s banking groups to maintain this longstanding and tried-and-found-true system. The implementation of the EU’s proposals would thus lead to a substantial worsening of the situation of Germany’s consumers.
Influence of control bodies has to be assured
fpmi considers the obligations imposed upon members of a deposit insurance scheme to pay into such to be acceptable only in those cases in which these members can, at the very least, indirectly (via control bodies) exert influence upon the shaping of the societal and policy-related thrusts of the facility managing the system, and upon its employment of funds. One area of coverage would be the commissioning of audits. It is not clear how this exerting of influence upon the deliberations of a pan-European system of security could be guaranteed, especially since standards of banking supervision in Europe continue to show a great variety of levels. The Europe-wide federation of deposit insurance schemes foreseen by the EU would deploy the funds gathered by the national schemes on a continent-wide basis. This would in effect constitute a transnational system of reallocation of funds.
The EU’s plans would, furthermore, lead to Germany’s banks having to pay 15 times as much for deposit insurance. This would join the pending and large-scale encumbrances set to ensue to banks from the new equity requirements imposed by Basel III in constituting an overburdening of the banks.
As of this writing, there would seem to be absolutely no justification for the stripping of national organizations of the power of deposit insurance system operation, and for the transferring of this authority to a supranational body. Member countries and banking groups should be allowed to retain the power of deciding how deposit funds are to be deployed, and of performing indemnification payments.
In the period following the incidence of the financial market crisis, the European Union promulgated alterations in its Deposit Insurance Directive. These alterations comprised increasing on an EU-wide basis the amount of deposits guaranteed to €50,000. This is to be followed in 2011 by a further increase to €100,00. fpmi hailed the proposals. The Initiative rejects, however, the current ones, which strive to achieve a Europe-wide harmonization of deposit insurance, as not being efficacious. Germany’s system offers consumers the highest level of protection possible. This system is comprised of the guarantees of operation provided to the country’s savings banks and to its credit unions, and of the unlimited levels of deposit insurance accorded to depositors by Germany’s privately-owned banks. The ceiling of €100,000 proposed by the EU would thus be substantially below the level of protection currently provided by Germany’s system. The new proposal would not permit Germany’s banking groups to maintain this longstanding and tried-and-found-true system. The implementation of the EU’s proposals would thus lead to a substantial worsening of the situation of Germany’s consumers.
Influence of control bodies has to be assured
fpmi considers the obligations imposed upon members of a deposit insurance scheme to pay into such to be acceptable only in those cases in which these members can, at the very least, indirectly (via control bodies) exert influence upon the shaping of the societal and policy-related thrusts of the facility managing the system, and upon its employment of funds. One area of coverage would be the commissioning of audits. It is not clear how this exerting of influence upon the deliberations of a pan-European system of security could be guaranteed, especially since standards of banking supervision in Europe continue to show a great variety of levels. The Europe-wide federation of deposit insurance schemes foreseen by the EU would deploy the funds gathered by the national schemes on a continent-wide basis. This would in effect constitute a transnational system of reallocation of funds.
The EU’s plans would, furthermore, lead to Germany’s banks having to pay 15 times as much for deposit insurance. This would join the pending and large-scale encumbrances set to ensue to banks from the new equity requirements imposed by Basel III in constituting an overburdening of the banks.
As of this writing, there would seem to be absolutely no justification for the stripping of national organizations of the power of deposit insurance system operation, and for the transferring of this authority to a supranational body. Member countries and banking groups should be allowed to retain the power of deciding how deposit funds are to be deployed, and of performing indemnification payments.