IMF's Lagarde urges euro zone to agree deposit insurance scheme

Euro zone countries must set aside national concerns about exposure to risks from other countries’ banks and build a shared bank deposit insurance system, said IMF chief Christine Lagarde.

Even though euro zone countries have shared a common currency for two decades, their financial systems remain fragmented, Lagarde told a conference at the Bank of France.

While euro zone banks now have a common regulatory supervisor and a single resolution scheme, many still choose to lend and invest locally rather than across borders, she added.

“It is clear what is left to be done: establish common deposit insurance. We can find ways to resolve our legitimate national concerns,” Lagarde said on Thursday.

“I urge euro area leaders to reignite the discussion, to negotiate in good faith and make the difficult compromises, to unlock the full potential of the banking union,” she added.

The European Deposit Insurance Scheme, or EDIS, is the last missing element from the euro zone’s banking union, which already includes a single supervisor and a resolution scheme.

Euro zone countries have struggled to reach an agreement because Germany, the Netherlands and other northern countries fear it could mean they would be left on the hook for the repayment of deposits in countries like Italy, Greece or Portugal, where banks are more burdened by bad loans.

(REUTERS)