Germany issues warning to the EU

German Finance Minister Christian Lindner has told the European Union not to alter rules that permit banks to benefit from lower capital and liquidity requirements if they are part of a crisis relief network. The EU’s executive European Commission is set to release draft reforms to the handling of failed banks on 18 April. Lindner requested that the Commission preserve the structure of Institutional Protection Schemes (IPS), stating that the framework is a “clear agreement” reached in June 2021. IPS networks link banks within a country, enabling a struggling bank to obtain financial assistance from other members of the scheme.

Participating banks pay into the network, receiving reductions in some capital and liquidity requirements in return. These schemes have been launched in Austria, Germany, Italy, Poland, and Spain. Lindner argued that the Commission’s current plan treats IPS in a similar manner to deposit guarantee schemes, which introduces new limitations. Additionally, he criticised the scope of the draft plans, which could lead to “very difficult negotiations”.

The EU official stated that the Eurogroup requested the Commission to strengthen and standardise rules governing the use of national deposit guarantee scheme funds when a bank is in trouble. The official clarified that the proposal would be a “balanced proposal” that takes into account the specifics of national banking models, emphasising its value in the path towards completing the Banking Union. Lindner’s team will offer concrete drafting suggestions for a carve-out to respect last year’s agreement not to tamper with IPS, he informed EU financial services commissioner Mairead McGuinness in the letter.

IPS is a fundamental part of depositor protections in Germany, according to a report for the European Parliament last year. The report, however, questioned whether banks in the scheme paid enough into an EU central bank rescue fund and which authority would manage a failing lender in a network. The announcement of reforms comes at a time of increased sensitivity in the sector, following UBS’s shotgun merger with Credit Suisse and the collapses of several US banks, including Silicon Valley Bank.