EU’s Experiment with Deposit Insurance: A Warning of Risks and Uncertainties from Austria

A warning about the potential weakening of the deposit insurance system has been issued by The National Bank, commercial banks, and the Raiffeisen Association. This concern comes 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.

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. Johannes Rehulka, Secretary General of the Raiffeisen Association shares this concern 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.

Willi Cernko, bank chairman in the Austrian Economic Chamber (WKÖ) also raises concerns about this proposal as it raises questions about depositors’ protection. He believes that allowing European resolution authorities access to these funds could undermine the goal of safeguarding depositors’ savings. Therefore, he emphasizes that any changes to deposit insurance must be carefully considered with regard to their potential implications on both depositors and financial markets as a whole.