On 7 November, Karl-Peter Schackmann-Fallis, Member of the Executive Board of the German Savings Banks Association (DSGV), presented the perspective of the German Savings Banks Finance Group on proposals for a European deposit guarantee scheme. The lecture was part of the SAFE Policy Center Lecture Series.
At the outset, Schackmann-Fallis described the existing institute guarantee scheme of the Group. Since the start of the Joint Liability Scheme in 1973, not a single member institute has experienced difficulties in servicing its liabilities. The joint liability scheme regularly carries out risk monitoring of all associated institutes. Schackmann-Fallis stressed that the institute guarantee scheme aims at averting possible events where institutes require funding. In his opinion, customers can benefit from this procedure because it guarantees a maximum protection of all claims of private and business clients as well as providing liquidity and credit supply. Overall, the system would limit risk taking by banks and moral hazard problems within the association as well as strengthen the confidence of customers and markets in the institutes. Thereby it contributes to the stabilization of the financial market as a whole.
The EU Deposit Guarantee Directive and the planned regulations for bank resolutions could, according to Schackmann-Fallis, put the institute guarantee system of the Savings Banks Finance Group into question. A single solution for Europe is targeted and other countries might not accept the German joint liability scheme. In 2010, a first draft for a European Deposit Guarantee Directive was presented to the EU Parliament and a lengthy negotiating process with the European Council and the European Commission started. Since then the three executive bodies are engaged in a “trialogue” which was interrupted mid-February 2012 and resulted in a mutual blockade. A fundamental bone of contention is the Deposit Guarantee Fund’s target level, where the Commission and the EU Parliament target a higher percentage (1.5 percent of eligible deposits, respectively covered deposits) compared to the Council (0.5 percent of covered deposits). In October 2013 the trialogue was resumed. Schackmann-Fallis expects a decision by the end of the year.
In the discussion with the audience, the question arose whether the fiscal responsibility for the Deposit Guarantee Fund should primarily be located on a national or a European level. According to Schackmann-Fallis, the politically discussed options are a) the replacement of all national systems by a pan-European system (one-stage scheme), b) the extension of national systems by a downstream European component (2-stage scheme) and c) national systems with mutual liability under credit facilities. Schackmann-Fallis stressed the claim of the DSGV that a European system has to secure that accumulated funds can also be used for measures to safeguard institutes, thus for prevention. He assessed a 2-stage scheme as a reasonable compromise, but stressed that moral hazard has to be avoided in any case and that incentives to take on national responsibility will be essential.
