I have just come from the College where we have adopted our proposal to gradually put in place a European Deposit Insurance Scheme by 2024. Alongside the legislative proposal, we have also published a Communication which sets out the broader context and – hand-in-hand with EDIS – a series of further measures to reduce risk in the banking sector.
As you know, the work on EDIS is part of a much bigger series of measures, set out in the Five Presidents' Report, and championed by President Juncker, to deepen Economic and Monetary Union. It is part of our work to build a stronger Banking Union. It was always intended that Banking Union would have three main legs – single supervision, single resolution, and a single deposit guarantee scheme. As you know, we have got the first two. Today, we are setting out how we plan to achieve the third.
At its most simple, what we are proposing to do is to move from the current system of national deposit guarantee schemes to a scheme that will underwrite deposits across the whole Banking Union. Depositors already have the confidence of knowing that their deposits are guaranteed up to €100,000 if their bank goes bust. A European-wide scheme would mean that banks would be better protected if there were larger local shocks. It would also fit within the overall logic of having Europe-wide supervision and resolution.
You will have some more detailed information both on the proposal and the Communication, so let me just highlight some of the main political elements and the way that we have approached things.
We have followed a step-by-step approach to take things in stages so that we can build confidence and trust as we take each step. We want to take the first step – the introduction of a re-insurance scheme – in 2017. We would run that for three years, and then gradually build up the fund on the basis of co-insurance, where you start to mutualise debt, until it is fully mutualised by 2024. Through all of it, individual depositors will of course continue to get the same level of protection as now - €100,000.
Overall it will be cost-neutral for the banking sector – contributions into EDIS will be deducted from what banks are due to pay into their national DGS.
I'm keen to stress that overall this is a balanced approach with no free rides – the deal is something for something, not something for nothing. So, you won't get any money out of EDIS unless you have first paid your full contribution to your national DGS. During the re-insurance phase - the first three years – you wouldn't be able to get any money out of EDIS until all the money in your national DGS has been paid out.
Next, once you move beyond the re-insurance phase and start sharing risk more directly, in what we're calling the co-insurance phase, we will move to a system of risk-based contributions – so riskier banks would have to pay higher contributions than safer banks.
In the Communication, we set out a range of other measures to reduce risk including looking at how banks' exposure to sovereign risks can be better diversified. And, of course, before any of this, we need to start with the basics – all countries need to implement the legislation that they have already agreed upon: transposing the BRRD and the DGSD, and ratifying the Inter-Governmental Agreement that determines contributions to the Single Resolution Fund.
Like all other aspects of the Banking Union, this will be mandatory for euro area Member States, but also open to any Member State which wants to join Banking Union.
Overall, I think we have come up with a very balanced package. I think it shows that it is possible to take forward risk-sharing and risk-reduction hand-in-hand. This is a package that will strengthen the banking sector, reinforce protection for depositors, reduce the link between banks and their sovereigns and further strengthen financial stability.