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European Deposit Insurance Scheme

European Deposit Insurance Scheme

In light of the economic and financial crisis in the European Union, which began around a decade ago, a process of strengthening economic and monetary union was initiated, with the creation of the Banking Union as one of its main vectors.

EDIS in the context of the Banking Union

The Banking Union is structured around three dimensions, or pillars: a single supervisory mechanism (SSM), a single resolution mechanism (SRM) and a single deposit insurance mechanism.

The three pillars of the Banking Union are being phased in.

The SSM and the SRM – which essentially and briefly consisted of the transfer of prudential supervision and resolution powers in regard of credit institutions to the European level, albeit with the involvement of the national authorities – are already in operation.

The completion of the Banking Union also requires putting in place the third pillar, the creation of a European Deposit Insurance Scheme. By offering the same level of protection for deposits in the Banking Union area on the basis of a common funding mechanism that is decoupled from the national level, EDIS would help deepen European integration and converge towards enhanced solidarity between the various Member States.

The proposal to create EDIS

The establishment of a European deposit guarantee scheme was proposed in The Five Presidents’ Report: Completing Europe’s Economic and Monetary Union (EMU) of 22 June 2015 and further elaborated in the European Commission’s Communication of 21 October 2015 on Steps towards Completing EMU.

Following this, on 24 November 2015, the European Commission presented a proposal for a Regulation establishing a European Deposit Insurance Scheme (EDIS), which was built on the basis of the European legal framework for national deposit guarantee schemes provided for in Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014.

This proposal was accompanied by a Communication from the European Commission entitled “Towards the completion of the Banking Union” setting out new measures to further reduce risks in the banking sector, the implementation of which was proposed in parallel with the work on that proposal.

More specifically, under the European Commission’s proposal, EDIS would have the following characteristics:

  1. It would consist of a single set of rules for all Member States, corresponding to the above mentioned Directive 2014/49/EU, complemented by the Single Resolution Mechanism Regulation (Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014), as amended by the European Commission’s proposal for the establishment of EDIS;
  2. It would be mandatory for all euro area Member States and would be open to non-euro area Member States willing to join the Banking Union;
  3. It would build on the current system, consisting of a European deposit insurance guarantee fund and national deposit guarantee schemes, including the Fundo de Garantia de Depósitos in Portugal;
  4. The EDIS would be administered by the Single Resolution Board (SRB), jointly with participating national deposit guarantee schemes, including the Portuguese Fundo de Garantia de Depósitos, and the European deposit insurance fund would be managed by the SRB, which already manages the Single Resolution Fund;
  5. It would apply to the deposits in all the banks of the Banking Union, while continuing to offer the guarantee of up to 100 000 EUR per depositor and per bank, and therefore so that all depositors from credit institutions would continue to enjoy the same protection;
  6. The EDIS would be called upon to intervene if one of those banks was declared insolvent and it became necessary to repay covered depositors or to make payments in the context of resolution proceedings;
  7. It would be financed by risk-adjusted contributions provided by all member credit institutions in the Member States to the SRB but calculated and collected by the national deposit guarantee schemes, thus maintaining the Fundo de Garantia de Depósitos as the contact point for member credit institutions in Portugal. For it to be cost-neutral for the banking sector, those contributions would be deducted from the contributions that the same institutions provide to the national deposit guarantee schemes, including the  in Portugal, so that no additional contributions would be required from the credit institutions.

The European Commission’s proposal aims to establish a stronger and more uniform deposit guarantee in the euro area, assuring depositors that the safety of their deposits does not depend on their geographical location, and to increase the resilience of the Banking Union against future financial crises, reducing the potential vulnerability of national deposit guarantee schemes to large events and further reducing the bank/sovereign links by means of steps towards risk sharing among all the Member States in the Banking Union.

Phasing in EDIS implementation

According to that proposal, EDIS would be implemented in different stages, gradually evolving over a period of eight years from a scheme complementary to the existing national deposit guarantee schemes (which would provide funding and cover part of the losses of such schemes arising from a payout event or a request to contribute to financing a resolution) into a common and comprehensive scheme (which would gradually provide all funding and cover all possible losses of national deposit guarantee schemes).

Thus, contributions to the European deposit insurance fund would gradually increase over these stages, offset by the gradual reduction of contributions to national deposit guarantee schemes.

In the final stage of the system proposed by the European Commission, aimed for 2024, it would be possible to ensure that deposit protection in the euro area was provided exclusively by the European scheme, albeit with the support and cooperation of the national deposit guarantee schemes.

The European Commission’s proposal is still under discussion by the various Member States at European level, therefore the establishment of a European Deposit Insurance Scheme and its terms and operation have yet to be decided.

The ambition is for an agreement on this essential component of the Banking Union to be reached as soon as possible and for it to be fully operational by 2025. This was the objective proposed in the European Commission’s reflection paper of 31 May 2017 on the deepening of EMU.

The Fundo de Garantia de Depósitos will continue to disclose all developments related to the project to build the European Deposit Insurance Scheme here, as they become public.


Additional reading suggestions

Reading suggestions refer to documents relevant to the debate on the construction of the European Deposit Insurance Scheme. The reference to the documents does not imply that the Fundo de Garantia de Depósitos subscribes to their content or shares the views and proposals contained therein, or even reflects an assessment of the credibility and technical quality of the documents in question. Neither is it the intention of the Fundo de Garantia de Depósitos, nor would it be possible, to exhaustively list all relevant documents. This list merely collects and shares references to documentation of which the Fund’s services have become aware and that may be of interest to the users of this space.