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Look behind Germany’s surprise call for deposit insurance

Finance minister Olaf Scholz has laid out Germany’s negotiating position for the completion of banking union, a pre-requisite for much-needed consolidation.


Andrea Enria, chair of the supervisory board of the ECB, gave a speech in London at the end of October celebrating some of the successes of banking union – establishment of a single supervisory mechanism for large banks, NPLs brought down from €1 trillion to €600 billion in the last five years – while also lamenting its failures, notably the lack of a European deposit insurance scheme.

Without this, a euro deposited in a country with weak banks might easily flee to a stronger bank in a different country at the first signs of stress. The single-currency project itself remains incomplete.

What a surprise then that one week later, Olaf Scholz, finance minister of Germany, the country regularly blamed for blocking such a scheme, should lay out in the FT his ideas for the completion of banking union, along with its so far missing third pillar.

Scholz actually calls not for a European deposit insurance scheme to replace national schemes but rather for a new European deposit reinsurance scheme to enhance those national arrangements.


Olaf Scholz, finance minister of Germany

In the event of a bank failure, the first resort for depositors would be to national insurance schemes; then, only if those funds are exhausted, to a European fund providing limited additional liquidity through repayable loans.

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