Deposit-guarantee schemes (debate) 
President
The next item is the report by Christian Ehler, on behalf of the Committee on Economic and Monetary Affairs, on deposit-guarantee schemes.
Christian Ehler
rapporteur. - (DE) Madam President, Commissioner, ladies and gentlemen, it gives me pleasure to be able to present a report to you today that was adopted unanimously by the Committee on Economic and Monetary Affairs. Before the vote in committee, the future of deposit-guarantee schemes was the subject of intense debate, particularly in the light of specific regional problems at the present time and of the recent crisis in the US property market.
At the end of 2006 the Commission presented a communication reviewing the 1994 Directive on deposit-guarantee schemes. Before drafting the communication, the Commission conducted a consultation process. On the basis of the empirical findings that emerged, we can conclude that the aims of the directive have essentially been achieved and that there is no need for any legislative intervention at the present time.
The increasingly cross-border nature of financial market structures in Europe, however, requires us to focus more sharply on the question of cooperation between the diverse deposit-guarantee schemes in Europe. In its communication, the Commission identified the areas in which self-regulation measures or different treatment of the legal bases could bring about further improvements in the interests of consumers.
This approach should, in our view, be pursued further. We believe that the dynamic discussion process involving the Commission, the Member States and the EFDI, the European Forum of Deposit Insurers, has a very useful role to play in enabling us to adapt as quickly as possible to changing circumstances.
The Nordea problem does not warrant calling for an expensive new amendment of the directive at the present moment. I am therefore grateful to the Commission for making it crystal-clear that the Nordea problem, which is essentially about the reimbursement of contributions, must be resolved by the Member States.
Those who operate the deposit-guarantee schemes in the Scandinavian countries and the supervisory authorities there must decide for themselves whether contributions are to be reimbursed or whether deposit guarantees in those countries should be treated like insurance policies and not give rise to refund entitlements. That is a fundamental problem, but it is a fundamental problem for the Member States.
The report can basically be divided into three parts. The first part is a discussion of the study undertaken by the Commission and the adoption of a position on its findings, such as the amount of the minimum guarantee. The second part addresses the question whether or not the diverse deposit-guarantee schemes in Europe cause unacceptable distortions of competition. The third part deals with future crisis and risk management.
On the first part of my report I intend to be very brief, since it proved largely non-contentious and reflects the findings of the consultation process on deposit-guarantee schemes. I believe our statement on the minimum coverage level, which should be adjusted for inflation when the directive is next revised, strikes a balance between the interests of the new Member States and those of the older ones. I should like to emphasise that every Member State and every deposit guarantor already has the option of exceeding the European minimum when guaranteeing deposits.
Another important point that is reflected in the report is the examination of the question whether the diverse deposit-guarantee systems and the various methods used to fund them are distorting competition. The Commission has set out its views and presented a study which, if its recommendations were implemented, would result in a harmonisation of funding for individual Member States.
If Member States with ex post systems were now to be asked to carry out a complete restructuring of their deposit-guarantee schemes at great expense, it would be necessary to analyse whether the diversity of the schemes and the accompanying unacceptable and expensive market distortions are at all justifiable in the internal market. This has not yet been analysed, and such an analysis will be an important task for the future.
The third part of the report examines risk and crisis management. The internal market and the increasing degree of cross-border interdependence require us to examine whether cross-border risk and crisis management works smoothly. There is an urgent need for in-depth discussions with all stakeholders. Long-standing issues such as the problem of free riders and the risk of moral hazard must be addressed in that context.
I believe that empirical studies analysing crisis and risk management are imperative if we are to work out viable arrangements for burden-sharing in the event of cross-border crises and common methods for early risk detection or develop a system for the introduction of risk-based contributions. These studies should then determine the content of subsequent discussions.
Against this background I also flatly reject the PSE amendment, which postulates existing market distortions although there is currently no evidence of these. We believe that the present process is the right approach.
Charlie McCreevy
Member of the Commission. - Madam President, I would first like to warmly thank the Economic and Monetary Affairs Committee and, in particular, the rapporteur, Mr Christian Ehler, for supporting the policy set out in our communication.
I fully endorse your view that legislative proposals are not appropriate at this stage. Some issues can be improved through set regulation without major cost impacts and by working together with the European Forum of Deposit Insurers (EFDI). The recent financial turmoil provides evidence that maintaining deposits or confidence is crucial during a financial crisis. As to deposit guarantee schemes, two elements seem to be key - an appropriate coverage level and a short payout delay. If depositors know that their deposit will be covered and if they feel confident that the insured deposits will be reimbursed rapidly, there is no need for them to join any queue outside a bank.
The existing directive has proven to be flexible and allows Member States to increase coverage according to their own economic situation. Member States may take immediate action if their coverage level proves to be inappropriate. The timely payout of insurer deposits can indeed be improved. According to the directive, reimbursements should normally not exceed three months, but this reflects the technology available back in 1994. This is why we have asked the EFDI to identify obstacles to a rapid payout.
Depositors must also be made aware of the protection available to them. The existing information obligations in the directive are applied differently across Europe. Therefore, we have asked the EFDI to identify best practices to improve the dissemination of such information to depositors. With regard to cross-border crisis, I share Parliament's view on the need to have clarity about burden-sharing and the interactions between all involved parties before such a crisis occurs. The ECOFIN conclusions of 9 October are clear on this point. I have noted the suggestion that the EFDI participate in general burden-sharing discussions. Let me underline that only very few schemes have powers which go beyond the mere reimbursement of depositors. Their funds will also only cover a fraction of the amounts involved in a larger cross-border crisis. Therefore, I am unable to support the suggestion to include the EFDI in general burden-sharing discussions.
The report also stresses the importance of eliminating possible market distortions. As requested, we will examine this matter. However, currently we do not think that the high cost of fully harmonising the present regulatory framework, estimated at between EUR 2.5 billion and EUR 4.5 billion, would be justified. Some level-playing-field issues are already being dealt with. For instance, we need to facilitate topping up, where a branch should be able to offer a level of protection in a host country that is higher than in its home country. However, sometimes, arrangements between schemes in different Member States have not worked in practice, and we support the EFDI's efforts to achieve a voluntary model agreement. Some Member States already adjust the contributions through their schemes according to the individual risk of banks. We would like to assist interested Member States, as this would contribute towards a level playing field for banks with similar risk profiles.
In conclusion, Europe needs deposit guarantee schemes that ensure depositor confidence in a financial crisis. With the envisaged improvements, I am confident that we will come closer to this objective.
Piia-Noora Kauppi
Madam President, first I would like to thank everyone because this is a very timely issue.
We all know that ongoing financial turmoil has underlined the importance of cross-border crisis management, and the October ECOFIN decision to have more ex-ante coordination between Member States and, especially, supervisory regimes cannot be more welcome.
Banks are at the heart of the payment system and deal with the savings of ordinary consumers who are not financial professionals. Therefore, the proper functioning of the payment systems and clearing and settlement system is particularly sensitive. Many of the banks are functioning cross-border now. A scattered national regulatory framework is not adequate. Currently, not even the types of account falling under the deficit guarantee scheme's requirements are the same in every Member State.
We should not let this become a depositors' problem. The rapporteur, Mr Ehler, has done good work in the report and showed a lot of willingness to compromise. In particular, the report rightly emphasises the importance of eliminating distortions of competition. As the Commissioner said, it is very important to guarantee a level playing field.
However, I regret that the report finally does not address the issue of ex-ante deposit guarantee (DG) schemes. While it has been argued by the Member States having ex-post DG systems that this is a problem specific to Scandinavia and Nordic markets, this is not. It is actually anti-competitive for the whole single market on a wider scale. In fact, most schemes in Europe are ex ante. If the rules of refundability and transferability of funds paid into such schemes are not harmonised, this distorts the choice between branch and subsidiary models in the host country, and this leads to distortion of competition. So it is very welcome that the Commission is studying this matter, analysing whether there are competition distortions and making possible future recommendations in this area, especially on refundability and transferability of ex ante deposit guarantees already paid in money.
So I welcome the Commission initiative and Mr Ehler's report but further work needs to be done.
Pervenche Berès
on behalf of the PSE Group. - (FR) Madam President, Commissioner, I am grateful to the rapporteur for his text. For once, I would echo many of the comments made by Mrs Kauppi. We began working on this text back in the spring and I think that those of us who considered it very timely have been proved right by the events of the summer.
What happened this summer raises questions about deposit-guarantee schemes. We simply cannot live with a system where many of the market players operate across a number of countries without deposit-guarantee arrangements that are at least harmonised or based on common principles, in the interests not only of competition by also of public confidence in market mechanisms.
I was very struck as I travelled around during the summer - and not just in the Scandinavian countries - at how this question of deposit-guarantee systems was raised systematically and was considered crucially important. I know, of course, what the Commissioner will say: 'If you were to put together all the European-level guarantee schemes, the total would still be no more than a drop in the ocean by comparison with the sums needed to tackle the crises.' That is a poor argument when we need to reduce our handicap in terms of both competitiveness and confidence in market mechanisms, particularly because it has the effect of distorting business strategies, as companies suddenly find themselves forced to arbitrate, for the wrong reasons, between their various subsidiaries and branches.
On the basis of all these arguments, I asked my group to support me. The group tabled an amendment calling on the Commission to work faster and to recognise what people expect of it: while they may not express their demand loud and specifically, in terms of a priority, they do need reassurance about how Europe's financial markets work and how accurately they respond to events. A sound, European-level deposit-guarantee system is bound to make a contribution in this respect.
Commissioner, I believe it is part of your task to assess the level of confidence or otherwise in the functioning of the financial markets at European level. It is hardly enough, I think, to sit back and await fresh research results. You need to take action to accelerate the response and enable us to progress on a more harmonised basis, with a better and more transparent understanding of deposit-guarantee schemes and how they operate in the European Union.
Wolf Klinz
on behalf of the ALDE Group. - (DE) Madam President, Commissioner, ladies and gentlemen, as has already been said, deposit-guarantee schemes have again been in the public spotlight in recent weeks. The case of Northern Rock, whose branches were inundated with hundreds of customers rushing to withdraw their savings, and the question of investor compensation in the event of the Bank's collapse are still fresh in our minds.
This illustrates all too well that the global integration of financial markets poses challenges for Europe too. The increase in cross-border consolidation in the banking sector raises questions about supervisory jurisdiction, the appropriate coverage level of deposit-guarantee schemes and cross-border cooperation between these schemes. As we know, the European minimum coverage level is set at EUR 20 000, but of course it is actually far higher in many Member States. The funding of the guarantee schemes, however, is a matter for the Member States, and the structures of the schemes are quite diverse.
For this reason the following points need to be clarified, and clarified quickly: the extent to which deposit-guarantee schemes need to be harmonised, their funding and the proactive ex ante use of resources for damage prevention.
In the case of cross-border institutions, attention focuses in the event of a crisis on the supervisory structure, particularly in the case of group supervision, and on burden-sharing. If a subsidiary is operating in a host Member State and belongs to that country's deposit-guarantee scheme but is subject to the supervisory authority of the home Member State by virtue of the principle of group supervision, a gulf is created between the supervision system and the deposit-guarantee scheme, and that is surely unacceptable and contrary to the interests of investors.
I do, however, support the line taken by the rapporteur. Before we resort to legislative measures, the Member States should first eliminate remaining weaknesses in their deposit-guarantee schemes. At the same time, the Commission, acting as quickly as possible, should conduct targeted studies of cross-border risk management and a detailed analysis of the ways in which the various schemes are funded. On the basis of its findings, serious consideration can be given to legislative measures at a later date if they are shown to be expedient and necessary.
Gunnar Hökmark
Madam President, I would like to thank the rapporteur for underlining the need for studies and analyses, but also concluding that, if there are distortions on the market, something has to be done in order to achieve a level playing field. I think it is important to conclude this from this debate.
If there are distortions, we can have different opinions - if they are there. But if they are there, something needs to be done. We need to do that because I think we all agree that we want more cross-border competition, and we also wish to secure the interests of the consumers.
It is relevant to discuss the difference between different systems, because if you have in some Member States ex-ante systems and in some Member States different ex-post systems, which in reality assumes that the state might bale out banks which cannot pay their customers, then you have a distortion.
It is my opinion that, due to the differences in opinion we have, there is a distortion already. The distortion is even more serious if it is also based on the assumption that the state should help banks which are not able to pay their customers.
I think a good achievement with this report by Mr Ehler is that we have achieved that conclusion. I think it is important that the Commission respond to that in future actions.
We might have differences in opinion about how the state of play is today. But we do agree on the need for action to be taken if the studies to be done show that there are distortions.
I would like to thank the rapporteur for that and also ask the Commissioner to respond to that with action.
Antolín Sánchez Presedo
(ES) Mr President, ladies and gentlemen, I would like to thank Mr Ehler for his work which comes ten years after the transposition of the 1994 Directive on deposit-guarantee schemes, in a period of financial upheaval when improvements to the European financial services market are under discussion.
There is currently considerable disparity between the positions adopted by the Member States and there are important issues to resolve. Although the majority of the Member States apply the system based on an ex-ante fund, there are still significant disparities in the level of guarantees, the size of funds and their method of financing.
To give two examples: the sum guaranteed is eight times higher in the most protective state than in the least protective state, and the guarantee fund in one state alone amounts to 40% of the European total. This situation creates a distortion of competition. The ex-post system threatens national and European financial stability in times of crisis.
Cross-border banking groups are also experiencing problems. The consolidation of funds from different schemes poses practical difficulties. A concentration of guarantees in a single system can only be achieved through a proliferation of regulations and agreements between states, something which fragments the system and makes it more vulnerable to an unacceptable accumulation of risk. There are substantial questions marks over the aims of the deposit-guarantee scheme: harmonisation of levels of cover, risk-based contributions, utilisation of funds to provide liquidity, burden-sharing, handling of cross-border crises, liquidation of institutions and cooperation between authorities.
Deposit-guarantee schemes should provide a risk-based safety net capable of protecting depositors, ensuring fair and effective competition, providing stability for the money markets and contributing to an equitable sharing of the burden in crisis situations.
Therefore, extraction of all the possibilities from the existing framework should not stand in the way of a thorough and ambitious reform once the necessary studies have been carried out.
Mariela Velichkova Baeva
(BG) Colleagues, I note the fact that financial crises are not new prehomena; they are indicators of an asymmetry between the financial sector and the real economy. The mortgage crisis in the USA has recently made financial experts say that the economies and the financial markets are interrelated and a large-scale discussion is needed to improve risk management.
The idea in the Ehler draft resolution to assess and improve the precuationary and early warning measures of the European Union with a view to ensuring the stability of the financial martkets, and the issue of guaranteeing deposits as a traditional form of savings in my country Bulgaria is very timely indeed. In this context, I wish to emphasize that the responsibility of banks to carefully organize their porfolio and effectively manage the resources of their depositors is of paramount importance. Of course, the greater awareness of citizens of the ways to use flexible schemes, the diversification of deposit forms and the mechanisms such as deposit guarantee funds further build confidence and promote financial stability.
Charlie McCreevy
Member of the Commission. - Madam President, I wish to thank Members for their contributions. In closing, I would like to make two key points.
We do not believe that regulatory change is appropriate at the current time. The directive has stood the test of time well. It is able to adapt to changing circumstances. In the longer term it will be crucial from a financial stability perspective for the positive guarantee schemes to contribute to smooth crisis management in an increasingly pan-European banking environment.
Any further steps towards more harmonised schemes in the European Union now depend therefore on the outcome of the wider work that is currently being conducted in the context of crisis management.
Concerning the problems raised by both Ms Kauppi and Mr Hökmark, the reimbursement of contributions to a bank that leaves the scheme, for whatever reason, is not covered by the existing directive and is therefore a matter for Member State legislation. Harmonisation at European level would require full harmonisation of the funding method.
I would like to thank the rapporteur, Mr Ehler, and the Committee on Economic and Monetary Affairs, for their very constructive approach.
President
The debate is closed.
The vote will take place on Thursday, 13 December 2007.
