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Report: EU may backtrack on euro-area deposit insurance plan

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Report: EU may backtrack on euro-area deposit insurance plan

The European Commission may scale back its European Deposit Insurance Scheme, or EDIS, as it tries to break a deadlock of the parties opposing the euro area-wide plan, most notably Germany, Handelsblatt reported Oct. 5.

European Commissioner Valdis Dombrovskis is expected to propose the change at a meeting on the completion of the European Banking Union on Oct. 11, the newspaper reported, citing an internal European Commission memo.

A Commission spokeswoman told S&P Global Market Intelligence that the Commission does not comment on leaks.

In a statement at the Single Resolution Board conference Sept. 29, Dombrovskis hinted about an upcoming discussion regarding the European Banking Union, saying: "This will involve progressing in parallel on risk-reduction and risk-sharing, and we will soon present our ideas for how to move forward."

The EDIS is a key part of the EU's package of measures aimed at ensuring financial stability in the euro area and the protection of depositors in future bank resolution cases. The EDIS builds on an existing system of national deposit guarantee schemes, which already covers all deposits up to €100,000 in EU member states. With EDIS, the EU wants to take the system a step further by providing euro area-wide cover. The EDIS would apply to deposits below €100,000 in all banks in the banking union.

The scheme was originally meant to be implemented in three stages: a reinsurance stage, a co-insurance stage and the euro area-wide stage, during which the deposit guarantee cover would be gradually transferred from the national governments to the EDIS. The scheme would provide €43 billion in cover upon full implementation.

Germany has been among the staunchest opponents of the EDIS, with its politicians and taxpayers worrying that the country will have to cover for bank failures elsewhere in the euro area. Finance Minister Wolfgang Schäuble has expressed concern that Germany's own banking deposit guarantee scheme will be considerably weakened through the adoption of EDIS.

As it aims to finalize the work on the banking union, the European Commission is now ready to consider alternative options to the implementation and seems to have backed away completely from the third and final stage of euro area-wide adoption of the scheme, according to Handelsblatt.

Dombrovskis said in the leaked memo that the process could be kicked off with an abridged version of the reinsurance stage and then gradually moved toward the co-insurance stage with no mention of anything else after that.

The reinsurance stage would last longer than originally planned and would not apply the deposit guarantee rules to the full extent outlined in the original plan. This means that during this stage, if a bank runs into trouble, the national deposit guarantee fund in its home country will cover deposits of up to €100,000 and in case further aid is necessary, the national guarantee deposit funds of other euro area countries will provide it in the form of lines of credit.

The initial idea of the European Commission was to split the deposit guarantee cost among the euro area members already in the reinsurance stage and not provide the option for repayment of the financial aid given by euro area member states other than the bank's home country.