The European Central Banks, latest publication of Depositors Guarantee Schemes Data[1], on its website, is an annual collection of Euro System wide Data, which covers the most recent cataloging, of Covered Deposits in the Euro Area Economies.
This data, which is compiled from all banks which exist within the European Union, is benchmarked against a Deposit Insurance Scheme.
This Deposit Insurance Scheme is mandated to arise to up to 1% of all covered Deposits in the European Union. The Problem is that this target, which is mandated by the European Central Bank, is woefully inadequate to deal with the sort of correction territory which was traversed last spring at the onset of the COVID-19 Pandemic, or (and this is especially true) the sort of Economic catastrophe which was brought upon the European Union by the United States Mortgage Crisis, and similar Deposit Insurance Schemes for Pensioners.
For instance, for the Republic of France, which is a European Union Founding Member, the EU Deposit Insurance estimates for that country estimate that there are a little over €1.3 Trillion Euros which are currently held in the Deposit Insurance Mechanism.
However the total amount of money held to cover this number of deposits barely exceeds €5 Billion Euros, or put another way less than .4% of Tier 1 Capital Reserve Ratios. For smaller nations, like Belgium, the total funds insured totals almost €317 Billion Euros, however the amount designated to cover this unfunded liability barely tops out at €4.3 Billion Euros, or 1.35% of Tier 1 Capital Reserve Requirements.
For larger one’s though, like Germany, its accounts show a total of some €2 Trillion Euros in Total Deposits with just under €11 Billion Euros used to cover them. With €793 Billion Euros of that coming from Germany’s often looked to Savings Banks, while only €4 Billion Euros is used to cover the amounts outstanding.
These amounts represent .5% of Tier 1 Capital Reserve Requirement Ratios set by the ECB’s Benchmark Committee.
Some Countries, such as Germany have more detailed information on their Banking Institutions, and the number of deposits covered in each, however without a centrally cleared report by the European Central Bank on the amount covered, and the funding used to cover it, the opaqueness of the financial accounts remains in place.
All of this is being done under the guise of a third covered bond protection program or CBPP3, a holistic program that has been reissued, and manipulated as an emergency measure that uses twice covered bond assets to fulfill its portfolio.[2]
This, which the EU has ruled in previous crises, is illegal, has the added effect of draining the resources of wealthier European Union Countries, and placing them in the hands of a wealthy elite.[3]
To make matters more complicated, and certainly more demanding, the toolkit in place used to monitor the Banking Institutions which are under duress by these twice covered bonds, and liquidity scenarios, is led by the Single Resolution Board, or SRB.
This board which is led by a Chair, a Vice Chair, and four permanent members, along with the relevant national resolution authorities, has under its authority a Single Resolution Mechanism (SRM). This mechanism is mostly held up by the aforementioned Single Resolution Fund (SRF).
The problem is that the Single Resolution Fund is currently established to only cover 1% of all Deposits in the EU Insurance Scheme. And this threshold is only projected to be obtained by the beginning of 2024.
Also, the way the SRB is set up, there is a lack of oversight amongst the various Deposit Insurance Corporations, which number to at least 35 individual entities.
This lack of coverage, and oversight of the EU’s Deposit Insurance Mechanism, with this inadequate benchmark must be ameliorated.
The problem which is presented is actually three-fold. The first problem, which is the reserve requirement ratios, can easily be corrected, by simply raising the threshold for reserve requirements, at the European Central Banks Deposit Guarantee Scheme, to at least 10%. By doing so this will allow for the process of beginning to cover deposits at an increased ratio to begin.
The second problem lies within the organization of the Single Resolution Board, and the participants in it. By having a Single Resolution Mechanism with a single officer in charge, the Board is unable to adequately complete its task.
And with the addition of the lack of sway and oversight from individual deposit banking scheme regulators in different Countries, like the previously mentioned protection scheme of the German Savings Banks Association (DSGV), the amount of input and the opportunity to exploit the advantages of such a large, and efficient banking system, but also for waste, fraud, and abuse, go unchecked.
My resolution, to this issue, is the creation of a European Central Bank Deposit Insurance Bureau (EDIBS). By creating a new and unique European Central Bank Organ, this will allow for outside input from the individual National Deposit Insurance Corporations, and allow them to have a position at the ECB’s Single Resolution Board which elevates them to advisers, and co-Vice Chairs.
This will allow for an additional layer of expertise which is currently missing from the ECB’s Single Resolution Board, and Single Resolution Mechanism. And thrice fold, the information which is presented to the board, and collected by the newly appointed Vice-Chair for Deposit Insurance Corporations, should also be presented to the public at large in a report which is published at least twice a year annually. European Central Bank Liquidity Measures indicate that there is still yet a bit of pain which the European Banking System as a whole must go through.
This means that we can expect to see more, yet still larger banks, such as Credit Suisse, continue to experience pain, and be unsettled by the recent developments in large crypto banks in the United States. However, as stated earlier, these events, though significant, should not upset the European, or American banking systems as a whole, by too much, and the overall health, will improve once these solvency measures take effect.
It is my hope that by making these changes, it is hoped that the ECB, and the Deposit Insurance Corporations can be brought back on to the path of fiscal solvency.
[1] European Central Bank System of Depositor Guarantees, European Central Bank, Accessed On: 04/04/2022, Found At: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12737-Banking-Union-review-of-the-bank-crisis-management-&-deposit-insurance-framework-DGSD-review-_en
[2] Technical Annex 2, Details of CBPP3, European Central Bank, October 2, 2014, Found At: https://www.ecb.europa.eu/press/pr/date/2014/html/pr141002_1_Annex_2.pdf, Accessed On: 3/13/2023
[3] Covered Bonds in the EU Financial System, December, 2008, European Central Bank, Found At: https://www.ecb.europa.eu/pub/pdf/other/coverbondsintheeufinancialsystem200812en_en.pdf, Accessed On: 3/13/2023