More EU bank risk-sharing needed, no permanent transfers planned: Centeno

By Jan Strupczewski

BRUSSELS (Reuters) – Risk-sharing in the banking sector would strengthen the euro zone economy but would not mean permanent transfers to nations with less stable banks, a top official told the European Parliament, seeking to allay concerns of richer EU states.

Mario Centeno, who chairs a monthly meeting of euro zone finance ministers, told deputies from the economic and monetary affairs committee on Tuesday that the euro zone needed a common bank deposit insurance scheme as part of its banking union.

“Having such a system in place will improve the protection of savers, reducing the risk of a bank-run in a euro area country,” he said.

The banking union is part of a plan for deeper integration among the 19 countries sharing the euro to prevent a future economic crisis. Finance ministers have been debating the issue for months to prepare decisions by EU leaders expected in June.

Germany, Austria, the Netherlands and Finland are cautious about setting up such a deposit insurance quickly because they are concerned about the often high ratio of bad loans in some countries — often a legacy of the last financial crisis.

Some countries fear that, if launched now, the pan-European deposit insurance scheme could lead to savers in countries with more stable banks bailing out consumers in countries where they are more fragile. But Centeno said this would not happen.

“Let me be very blunt about this. Firstly, no one is asking for permanent transfers. No one envisages creating a system to be exploited by free-riders,” said Centeno, a Portuguese.

CAPITAL FLOWS

Apart from finishing the banking union, Centeno stressed the need to make it possible for capital to flow more freely across the euro zone, in what the EU calls a capital markets union.

The goal is to make EU companies less dependent on local bank loans and let them tap various sources of capital across the EU, as U.S. companies are able to do in the United States.

Giving examples, Centeno said it was about making it easier for start-ups from Finland to find financing in France, for an Irish pensioner to place savings in Germany or for a medium-sized Spanish company to raise capital in the Netherlands.

“The citizens of Europe will profit from higher growth and job creation, and will be able to diversify and get better returns on their savings,” Centeno said.

However, he noted that to make it happen, the EU had to be able to process and oversee capital flows better.

“We have to remove cross-border barriers to such flows. This touches upon issues such as information asymmetry, taxation, insolvency law, and, more generally, the quality of domestic institutions,” he said.

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