Financial union German banks oppose an EU-wide deposit insurance

A European deposit insurance scheme could do more harm than good, writes the head of the German Savings Banks Association. The new German government must take a more balanced approach to closer financial cooperation.
Should the whole EU save for a rainy day, or should every nation look after their own deposits? Some German bankers think the former is a bad idea.

Europe must develop in such a way that it is supported not only by European elites, but also by the public in general. At the moment we are seeing more nationalistic tendencies in many European Union nations. For many years (as head of the savings bank of Heidelberg) I helped developed a regional economy characterized by its international influenced, so I am very well aware of how important Europe is for our own prosperity. At the same time though, I have considerable doubts that the response to this mood (of turning away from Europe) should be more centralization, at high speed.

For the foreseeable future, people in Europe will continue to define themselves culturally through their affiliation with a nation state, and increasingly also through their regional affiliations. The EU is not a country. It cannot replace the nation state, nor do I see a majority hoping this will change.

That is why our thoughts about the further development of Europe must be based on the principle of subsidiarity – that is, where a central authority is subsidiary, performing only things that cannot be undertaken at a more local level. Giving all the power to Brussels does not make us good Europeans.


One of the most important lessons of the last financial crisis is that entrepreneurial and political responsibility and liability must not be separated.

This also applies to the further development of the European banking union. It is understandable that the response to a growing need for security - also in economic terms - is to improve deposit insurance schemes. That is why a uniform, and higher, level of protection was decided upon in 2014. All EU member states are working to turn this into reality. There are many places where banks need to be better secured against risk.

One mistake is the idea that an optimum level of deposit insurance can only be achieved if all that responsibility, and the insurance pot itself, is consolidated in Brussels. Centralized European liability leads to the opposite outcome – that is, more carelessness and less effort made to achieve stability, because you can rely on others to bail you out. One of the most important lessons of the last financial crisis is that entrepreneurial and political responsibility and liability must not be separated.

Imagine the deposit insurance scheme as a ship on the high seas: Would we really feel safe if the ship had only one, large watertight compartment to seal off in the event of a hole in the hull? Wouldn’t you prefer to have a number of different compartments below decks, all of which can be sealed off, so the damage caused by the leak is evenly spread and keeps the boat floating?

It's similar with deposit insurance schemes. It isn't just a matter of the size of the assets involved. It is much more important that people from throughout the EU trust the system. If savers expect that the collateral that secures their savings may be withdrawn to service foreign banks in the event of a crisis, there is surely a risk that they will withdraw their money in order to keep it safe.

A uniform deposit insurance scheme - or even one where this is only mutual liability - can quickly become an instrument for spreading instability. This would be true even if bank balance sheets everywhere were one day freed of inherited liabilities or "legacy assets." That is why we are strictly opposed to centralizing the European deposit insurance scheme.

We cannot be jointly liable for banks in other European countries whose risks we cannot assess or influence. Liability must remain where the decisions are made and the risks taken, and economic policies are put in place. It should remain with national taxpayers, when their politicians made the wrong decisions. In a situation like that, savers in one country cannot expect to be bailed out by savers from another EU member state.

Another question is how financial aid can be provided in emergencies. Germany has demonstrated its willingness to provide such aid in recent years. But this aid should be limited to emergencies. A system where you can always rely only on your neighbor to bail you out does not strengthen unity in the long run. That’s why a transfer union is not a viable model for the future.

All this must be considered by the political parties talking about forming another “grand coalition” in Germany. They need to work out how to welcome the French initiative for further European development and, at the same time, look at how to curb some of Brussels' overreach.

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