FRANKFURT (Reuters) - Euro zone depositors would come out unscathed from a crisis even more severe than that of 2007-09 if their governments were to agree to create a common depositor safety net, a European Central Bank research paper said on Wednesday.
A European Deposit Insurance Scheme (EDIS) would protect deposits of up to 100,000 euros in any euro zone bank through a fund financed by banks and backed by their governments.
The study addresses some of the objections that have held back the launch of EDIS for years, such as concerns in Germany and other countries that they would end up footing the bill for trouble elsewhere.
Speaking after the paper’s publication, ECB supervisor Pentti Hakkarainen said he hoped the study brought “the debate back to reality”.
“I hope that this factual analysis brings the debate back to reality – and provides reassurance on the large net benefits associated with establishing such a scheme,” Hakkarainen said in Brussels.
The researchers found that a pot worth 38 billion euros, in line with the European Commission’s design, would not be exhausted even if 10 percent of the euro zone’s riskiest banks failed at the same time and the sector suffered losses far larger than those of the latest crisis.
This means the Deposit Insurance Fund (DIF) could rely on the money paid in by banks, and taxpayers would not need to be tapped for fresh funds.
“The results indicate that a fully-funded DIF would be sufficient to cover payouts even in very severe crises - even more severe than the 2007-2009 global financial crisis,” the six economists said in the paper.
But the association of German savings banks rejected the idea.
“A common safety system creates new risks of contagion and increases the nervousness of savers in an emergency,” the Deutscher Sparkassen und Giroverband said.
The study also estimated that lenders in any particular country would receive more than they have paid in only in the most extreme scenarios and this would only happen in Greece, Spain, Belgium, Cyprus, Malta and, in one case, Luxembourg.
“EDIS would offer major benefits in terms of depositor protection while posing limited risks...since the probability and magnitude of interventions are likely to be low,” the researchers said.
Crucially, this is predicated on the assumption that banks’ contributions to the fund depend on how risky they are. German banks would be the biggest contributors with 12.5 billion euros.
Such a scheme, long championed by the ECB, is also seen as a variable in the calculus to choose Mario Draghi’s successor as the President of the central bank.
Some analysts say Germany’s opposition to a joint insurance could work against the election of Jens Weidmann, the head of the Bundesbank and widely seen as the front-runner in the presidential race.
Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands and Sweden have also said euro zone banks must first reduce exposure to risks before the EDIS project can start.
Reporting by Francesco Canepa; Editing by Hugh Lawson