Key conditions from the
excellent Wolfgang Munchau
The
deposit insurance should have no limits. It is probably best to anchor
it at the ECB itself – which would be justifiable if and when the bank
recapitalisation facility was big enough. Its goal should be to stop the
two types of bank run we are seeing right now. The first is sectoral: a
run on weak banks, with money routed to strong banks. The second is
geographic: a run on banks in weak peripheral countries, with money
routed to core countries. In other words, the deposit insurance not only
needs to insure deposits, but the euro value of the deposit even if the
country leaves.
Both
schemes require deep institutional change. A joint recapitalisation
fund needs a central supervisor with the courage and power to walk into a
Spanish bank and close it down. Deposit insurance must be accompanied
by a deep political union. Otherwise, it might create moral hazard by
encouraging countries to leave the eurozone in safe knowledge of this
guarantee. Without a commitment to further political union, deposit
insurance is either ineffective or ruinous. Recapitalisation, insurance
and joint supervision therefore go together.
So, a proper banking union is a very big deal indeed.
