Euromoney (May 31)
“There’s one problem with a European deposit guarantee scheme: it won’t work.” Fear of bank runs is growing. To counter these fears, Jose Manuel Durao Barroso, president of the European Commission, has put forth “a banking union with integrated financial supervision and single deposit guarantee scheme” (DGS). However, a DGS would do little to calm fears of redenomination, even if it could be prepared in time. Greece has a DGS, yet 25% of bank deposits were withdrawn in the past 2 years, largely because savers worry their euro deposits will be redenominated into drachma. Furthermore, most DGS “protect against the failure of one or two banks, not the failure of a national banking system.”
“There’s one problem with a European deposit guarantee scheme: it won’t work.” Fear of bank runs is growing. To counter these fears, Jose Manuel Durao Barroso, president of the European Commission, has put forth “a banking union with integrated financial supervision and single deposit guarantee scheme” (DGS). However, a DGS would do little to calm fears of redenomination, even if it could be prepared in time. Greece has a DGS, yet 25% of bank deposits were withdrawn in the past 2 years, largely because savers worry their euro deposits will be redenominated into drachma. Furthermore, most DGS “protect against the failure of one or two banks, not the failure of a national banking system.”
Tags: Bank runs, Barroso, Deposits, DGS, Drachma, Redenomination
