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

The banking sector in Austria is facing potential changes to the deposit protection system that has been in place for years. Bank chairman Willi Cernko and Johannes Rehulka, general secretary of the Raiffeisen Association, are raising concerns about how failing banks will be handled in the future and who will ultimately bear the costs in case of bankruptcy.

To reassure the public, the Ministry of Finance is working at EU level 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 the past and should continue to protect secured savings deposits in the future.

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

The debate stems from a need to improve planned resolutions for large banks in Europe, particularly contrasting liquidation for smaller or medium-sized banks. The EU resolution law is set to expand on this issue, although political resistance due to cross-border financial responsibility prevents EU-wide deposit insurance from a single pot.

Overall, stakeholders are working together to address these challenges and find a balanced approach that protects both savers and the banking sector while maintaining financial stability.

By Aiden Johnson

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