EDIS framework from a national perspective a viewpoint of the regulator

Transcription

1 EFDI International Conference 2016 Harmonization vs. Centralization is EDIS the way to go? EDIS framework from a national perspective a viewpoint of the regulator Tomas Garbaravičius Board Member 30 September 2016 Vilnius The views expressed are those of the author and do not necessarily reflect those of the Bank of Lithuania

2 An efficient EDIS should address uncertainty, fragmentation and regulatory arbitrage Absence of common deposit insurance increases uncertainty and fragmentation in the European banking sector European banks can engage in regulatory arbitrage across national DGSs Differences in national DGSs should be taken into account (starting levels, covered institutions, other elements) 2

3 Insufficient integration is detrimental to the European financial sector Single market à la carte is incompatible with the very nature of the EMU Fragmentation creates an arbitrage opportunity for deposit insurance contributions Without EDIS free movement of deposits across MS remains distorted 3

4 Harmonisation of deposit insurance would eliminate opportunities for arbitrage Percentage of covered deposits 3,5 3,0 2,5 2,0 Target levels and available funds of national DGSs in selected Nordic-Baltic countries Percentage of covered deposits 0,36 0,32 0,28 0,24 Available financial means and annual contributions to national DGSs vary significantly across countries 1,5 1,0 0,5 0,0 0,5 1,0 Lithuania Finland Latvia Sweden Norway Estonia National target level Available financial means Minimum required target level Ex-ante annual contributions (right axis) Sources: Bank of Lithuania and national DGSs calculations. 0,20 0,16 0,12 0,08 0,04 0,00 Substantial incentives for a credit institution to choose a domicile with lower deposit insurance premiums 4

5 Domicile of a new joint Baltic bank of DNB and Nordea: A clear example of regulatory arbitrage? Changes in covered deposits after the reorganization is completed EUR billions Lithuania Latvia Estonia New entity DNB subsidiary, operating as a Nordea s branch branch Plan Now New entity DNB subsidiary, operating as a Nordea s branch branch DNB Parent subsidiary, bank, new Nordea s HQ of the branch group A new joint Baltic bank will pay much lower deposit insurance premiums in Estonia (0.03%), as compared to 0.10% in Latvia and 0.32% in Lithuania Currently Estonia After reorganization Currently Lithuania After reorganization Note: All non-financial corporations and household covered deposits. Source: Bank of Lithuania calculations. 5

6 Banking sector is much better prepared for full integration Loss absorbing capacity has improved (Tier 1 capital ratios in EU countries) Percentage Centralisation has been successful so far Range Interquartile range Median SSM SRM CRA Sources: ECB and Bank of Lithuania calculations. 6

7 EDIS has to take into account differences in national starting levels MS should be allowed to reach the target level at their own pace as agreed in DGSD As long as a MS follows its national accumulation path, it should be eligible to receive financial assistance from EDIF Target level, % 0.8 Otherwise: Year MS would contribute to EDIS without being able to receive financial assistance in the case of a payout event Contributions to EDIS would reduce the size of national DIFs 7

8 Differences in THBs and other elements of varying national approaches should be taken into account DGSD provides for an additional layer of protection for some consumers with temporary high balances MS have varying national provisions for set-off arrangements Any exceptions distort competition within the Single market A common framework needs to be found 8

9 EDIS scope vs the current scope of national DGSs All institutions that belong to the national DGSs should fall under the scope of EDIS Institutions left outside EDIS would need to pay higher contributions Entities providing same services would face discriminatory treatment For instance: Lithuania: Ireland: 5 per cent of covered deposits are held by credit unions Around 2/3 of Irish citizens use services provided by credit unions 9

10 EDIS is useful from a national perspective to ensure a level playing field across the Single market and its creation should help to break links between banks and sovereigns 10