EU plans for 100,000 euro deposit insurance at banks spark controversy

Deposit Protection System Under Threat: Will Banks Pay the Price?

The Raiffeisen Association’s general secretary Johannes Rehulka and bank chairman Willi Cernko are raising concerns about potential changes to the deposit protection system that has been in place for years. They warn that failing banks will be handled differently in the future, and the ultimate cost of bankruptcy will fall on savers. They urge maintaining the current deposit insurance amount of 100,000 euros per customer and bank to protect depositors and preserve financial stability.

The Ministry of Finance is working with EU officials to reassure the public about efforts to strengthen the banking sector. They emphasize the importance of maintaining strict bail-in regulations that require creditors and owners of failing banks to cover losses and costs. The Austrian deposit insurance system has been successful in protecting depositors in past crises, and it should continue to do so in the future.

One concern raised by domestic bank representatives is a proposed expansion of deposit insurance funds by the EU Parliament. This could weaken owner and creditor participation in bank failures and leave the deposit insurance pot vulnerable. Additionally, preferential treatment for deposit protection in insolvency cases could be eliminated, forcing banks to contribute more to the deposit insurance fund.

The debate stems from a need to improve planned resolutions for large banks in Europe, particularly compared with smaller or medium-sized banks’ liquidation. The EU resolution law is set to expand this area, but political resistance makes it difficult to implement EU-wide deposit insurance from a single pot due to concerns about cross-border financial responsibility.

In summary, stakeholders are working together to ensure that the deposit protection system remains robust and effective in safeguarding savings deposits while also maintaining financial stability.

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