A deposit insurance at EU level is controversial and unpopular in Germany - German savers would then be liable for Italian banks, they say. Why does she think such a backup is right and why it could work like a car insurance, explains Isabel Schnabel in an interview. The economist is one of the Federal Government's economics and will join the Executive Board of the European Central Bank (ECB).
ZEIT ONLINE: Mrs. Schnabel, Federal Finance Minister Olaf Scholz gives up his resistance to a pan-European hedge of savings. What do you make of it?
Isabel Schnabel: I think that's a very important push. It brings movement into a fierce debate and picks up on the issues that are important for the stability of monetary union. This also includes the in Germany little popular deposit insurance.
ZEIT ONLINE: To what extent?
Schnabel: A deposit guarantee is intended to prevent customers from panic-stricken withdrawing their money when there are doubts about the solvency of a bank. Deposit Guarantee Schemes, however, cover only a fraction of deposits at banks. The credibility of deposit insurance therefore depends on the state behind it with its financial strength.
ZEIT ONLINE: Why is that a problem?
Schnabel: Because deposit insurance creates a risk pool between banks and states. If the credibility of deposit insurance suffers because a country is heavily in debt, it can destabilize the banks. A European deposit insurance could prevent this.
ZEIT ONLINE: Now you could argue: Why should it interest us in Germany, whether a bank goes down in Italy?
Schnabel: It's an illusion to believe that's none of our business. Our economies and financial systems are very much involved in this. We are members of a common currency area. We have seen the damage a crisis in a small Member State, such as Greece, can do. It is in our interest that this does not happen again.
ZEIT ONLINE: The critics say: About the deposit insurance German savers have to pay for dilapidated Italian banks.
Schnabel: In this statement is the assumption that the German banks are doing great and the Italian bad. This is not true in this generality. Also in this country there are banks, which do not shine straight. In addition, according to the plans of the German Ministry of Finance, the European deposit insurance scheme should function like a reinsurance policy. This minimizes this risk.
ZEIT ONLINE: How that?
Schnabel: Like a car insurance company, there would be a type of self-participation. In case of damage, therefore, the national deposit guarantees would first step in. Only if national funds are exhausted would funds flow from the European fund - but only as a loan. At this point I would go further, it should also be possible to take over losses.
ZEIT ONLINE: How would the European deposit insurance fund?
Schnabel: About contributions from the banks. Banks with a risky business model or banks from countries with weak institutions, such as inefficient bankruptcy regimes, would then have to pay higher fees than solid banks in countries with good institutions.