Banking Union

• The Finnish financial sector supports the Banking Union. We believe it increases the stability of the euro area financial market, and that single supervision and a single rulebook promote fair competition.
• However, the completion of the Banking Union must be based on sound risk management and clearly defined responsibilities.
• The proposal for a European Banking Union aims to support the stability of EU financial markets, weaken the link between banks and sovereigns, and to promote a level playing field. It consists of the Single Supervisory Mechanism, the Single Resolution Mechanism, and the harmonisation of national deposit guarantee schemes.

EDIS is possible only as a temporary liquidity support mechanism

The Commission made a legislative proposal for a European Deposit Insurance Scheme (EDIS) in November 2015, and no political agreement has yet been reached. Finance Finland has been critical of the proposal. The current system of national Deposit Guarantee Schemes (DGSs) is fairly simple and well-functioning and there is no need for new institutional structures or joint liabilities.

After the reform of the Crisis Management and Deposit Insurance (CMDI) framework, it is possible that part of the losses of a failing bank is absorbed by the bank’s national DGS. In Finance Finland’s opinion, it should not be possible to transfer these losses to the DGSs or banks of the other member states. However, temporary liquidity support could be arranged between the DGS of the failing bank and the other DGSs in the form of repayable loans. This would help the resolution process until the national DGS can recover funds from the failed bank’s bankruptcy estate (or from a bridge bank). Adherence to the bail-in principle should be the overarching principle to avoid moral hazard and minimise contagion risk in the Banking Union