July 18, 2019

Central Bank calls for deposit insurance scheme

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The Bank of Spain called on euro zone countries recently to complete the banking union by setting up a deposit insurance scheme and to create a stabilisation fund, while warning of risks to bloc’s economy such as Brexit uncertainty. Spokespersons said Europe faced significant downside risks from Britain’s plans to leave the EU, high national debts, aging populations and low productivity. 

The European Deposit Insurance Scheme (EDIS) is the missing part of the plan for a full euro zone banking union which aims to make the financial sector more resilient to shocks and less likely to need taxpayer bailouts. “It is necessary to complete (the) revision of the Economic and Monetary Union to avoid the single currency still being exposed to tensions in case of high-calibre disturbances,” Bank of Spain governor Pablo Hernandez de Cos said recently as part of a presentation of the central bank’s annual report. 

Germany, the Netherlands and other northern countries fear agreeing to EDIS now would mean they could be burdened with repaying deposits in countries like Italy, Greece or Portugal, where banks are vulnerable, often as a legacy of the sovereign debt crisis of 2010-2015. 

The banking union must be completed before the euro zone faces another recession or financial crisis, a source at the Bank of Spain said. 

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