Schleweis: “This is not the time to centralise deposit guarantee schemes in Europe”

DIW study lacks foundation

The German Savings Banks Association (DSGV) is against a centralisation of deposit guarantee schemes in Europe. “Trust in the stability of Germany as a financial centre is key to a rapid economic recovery. Centralising deposit guarantee schemes in the European Union would be counterproductive because it could undermine trust in Germany’s guarantee schemes, which have proven their effectiveness over many years”, said DSGV President Helmut Schleweis.

This assessment was prompted by a study published today by the German Institute for Economic Research (DIW – Deutsches Institut für Wirtschaftsforschung). The study draws attention to the potential adverse impact that loan defaults caused by the coronavirus crisis might have on the German banking sector. However, the publication does not distinguish between the deferral of repayments, actual loan defaults, and the write-down of bad debt. In addition, the study has not taken sufficient account of the many measures initiated by the German government and other public agencies to support the real economy. These measures will help borrowers to service their loans again after the deferral phase. The assumptions made in the study must essentially be questioned: in all the scenarios, the higher risks posed for citizens by a centralised deposit insurance scheme are not considered. It is incomprehensible why the DIW study refers to a study conducted by Gropp (IWH – Leibniz Institute for Economic Research, Halle), which did not use scientific methods to determine potential insolvencies, and accepts its conclusions uncritically. With the recovery process just beginning, it is altogether impossible to predict on a serious basis how potential insolvencies might develop. All economic research expects relatively strong growth in the entire euro area in 2021. Seriously-minded institutions should not be spreading panic prematurely.

The coronavirus pandemic and its impact do not stop at national borders. All national economies in Europe and beyond are feeling its effects. In the DSGV’s view, it makes no sense to respond to symmetrical shocks by centralising deposit insurance schemes. Instead, solidarity among EU Member States – organised by means of an enhanced European Stability Mechanism (ESM), the EU budget and the EU Recovery Fund – is the right way to go in order to help affected EU Member States. 

The European bank resolution mechanism – the resolution authority and the resolution fund which has largely been filled by now – already provides a set of tools today to manage bank insolvencies at European level. Deposit guarantee schemes were harmonised in Europe years ago by an EU Directive devoted to this matter. Schleweis: “The German government made it clear very early on that one of the preconditions for any talks about further risk sharing in Europe is a substantial reduction of risks. In view of the pandemic and its impact on national economies, this has been postponed to the distant future.” Besides, whatever ideas are put forward, the independence and functionality of the institution protection schemes in Germany are not up for discussion. 

In its May 2020 study on macro-economic effects, the DIW itself warned against the adverse effects that a centralised EDIS (European Deposit Insurance Scheme) would have on the banking sector.