European Deposit Insurance Funds: A Potential Threat to Financial Stability and Saver Trust

The National Bank, commercial banks, and the Raiffeisen Association have issued a collective warning about the potential weakening of the deposit insurance system. This concern stems from a decision made in the EU Parliament, led by rapporteur Othmar Karas (ÖVP), which allows for national deposit insurance funds to be used for resolution cases at a European level. Specifically, half of the funds from national deposit protection funds in Austria, totaling two billion euros, could be transferred to an EU pot, accessible by a European resolution authority if necessary.

Johannes Rehulka, Secretary General of the Raiffeisen Association, shares similar concerns and warns against conducting such broad experiments just before the EU elections. Maintaining financial market stability and preserving savers’ trust in functioning systems are paramount and should not be jeopardized without a clear necessity. The potential implications of these changes are significant and warrant careful consideration before any further action is taken.

While the National Bank acknowledges the importance of being prepared for times of crisis, they also emphasize the need for a coherent overall concept that significantly improves financial market stability before any decisions are made. The current proposal raises concerns about the protection of depositors, as allowing European resolution authorities access to these funds could undermine the goal of safeguarding depositors’ savings according to Willi Cernko, bank chairman in the Austrian Economic Chamber (WKÖ).