Kolak: We are witnessing an unnecessary rush to make a far-reaching decision. Haste is not a good advisor. Here is an attempt to rush a decision on deposit insurance, a topic that heavily relies on trust.

Reuter: We strongly criticize the process. The necessary prerequisites for the European Deposit Insurance Scheme (EDIS) have been delayed for years – and now the mutualization is being pushed through in a rushed manner without the necessary foundations. There are still several hundred amendment proposals lying unaddressed on the table. The critical consequences must be carefully considered. It is essential to involve those who are most affected and operate functioning deposit insurance systems.

Kolak: We fear that experiments with the trust of savers are being attempted here.

Reuter: No, it's not just about liquidity support. This is the beginning of mutualization. It's no coincidence that what is being voted on Thursday is labelled „EDIS 1.“ With this step, they are trying to make the issue irreversible.

Kolak: I am a trained banker. Providing liquidity entails risks. Banks, and supervisors, see it that way too. To speak of „just liquidity support“ ignores this fact. And besides, when you say „EDIS 1“, you're also saying „EDIS 2“.

Reuter: This process is supposed to be evaluated for functionality and robustness within four years. If liquidity support is provided, the affected group of institutions should have six years to repay the liquidity. However, a report should already be available after four years to assess whether it has proven effective. This won't work. Moreover, liquidity support already entails assuming risks.

Reuter: Providing liquidity in times of crisis always involves a default risk. And it's foreseeable: if an institution is unable to repay the liquidity after two or three years, some will say: see, it doesn't work, we need to share risks in the overall market.

Reuter: Let's be honest: If such a situation arises, and an institution really only needs liquidity support for two or three years during a crisis and can then operate independently again, then the market is surely capable of providing liquidity support even without such a system.

Kolak: That's not the point for me. As I said, the EDIS proposal, viewed overall, is not mature and also carries risks in conjunction with Pillar 2 of the Banking Union, which is also currently being revised. But it is true that the EU Parliament's draft until last week explicitly provided for an exemption of institutional protection. Then came the many amendment proposals.

Reuter: An exemption of institutional protection from the scope would be the only correct decision from our point of view. Just like the cooperative banks, savings banks maintain functioning institutional protection systems. These act preventively and thereby prevent deposit insurance cases. Groups of institutions operating under a single brand cannot afford the difficulties of individual institutions. This is in the interest of all customers, not just depositors. And our institutions operate in different markets than large banks. Therefore, the argument that a „level playing field“ must be created here is not convincing.

Kolak: Institutional protection systems are the fire safety measures – and the EU wants to abolish this fire safety. That would send completely wrong signals in the current situation. Moreover, institutional protection exists not only in Germany but also in Austria, Spain, Italy, and Poland.

Kolak: A clear yes. Period. The system is robust, as numerous real stress tests have shown. The fact that this is not usually discussed publicly is a testament to its quality.

Reuter: Fire safety is better than firefighting. We intervene preventively before problems arise. Nevertheless, we would be able to support each other.

Kolak: In this context, I would like to remind you: It was precisely a lesson from the financial crisis that one should differentiate between systemically relevant and less relevant institutions. Because a single regional bank cannot pose a systemic risk, especially since we have been successfully ensuring fire safety for 90 years.

Reuter: It is argued: No one should worry any more if they want to save money in an account with a bank from an EU neighbour country. But: Deposits up to 100,000 euros are already uniformly insured throughout the EU. So, there must be other motives. If the motive is to hedge the risks of large European banks, because this facilitates mergers and market entries, then the small, regionally active institutions must be excluded from this. We do not want to secure new business opportunities for large banks with the security funds saved for the safety of our customers.

Kolak: We also say that integration in Europe must progress, and we say that the second step should not be taken before the first. In Brussels, two strands are currently being worked on simultaneously. Crisis management in the context of the CMDI framework on the one hand, and EDIS on the other. Crisis management is supposed to be improved in the context of CMDI. But with EDIS, incentives for insolvency and compensation are created on the other side. This is not consistent. From our point of view, crisis management should be thoroughly worked out first, and then the Banking Union, but please holistically.

Kolak: The federal government has promised us its support. We rely on that remaining the case.

Reuter: The Chancellor, the Federal Minister of Finance, and the Federal Minister of Economic Affairs clearly positioned themselves at the Sparkassentag last year. There are no indications that the federal government will deviate from this position. All political forces in Germany see that cooperative banks and savings banks stand for the stability of our economic system. We provide 80% of the financing for German SMEs.

Reuter: No. The basis of the EU is the principle of subsidiarity. That means allowing things that work well locally to simply work well locally. And setting cornerstones to which all market participants in Europe must adhere. We miss this in the proposed regulation for a uniform deposit insurance system.

Reuter: Unfortunately, we currently see in regulation and supervision that subsidiarity and proportionality are not being observed to the extent which was promised to us. We are experiencing a concerted attack on decentralized banking groups here.

Kolak: In this context, I would also like to recall the Lisbon Treaties, which state the principle of subsidiarity as the basic manifesto. This is completely ignored in this case. Moreover, Europe is called „United in Diversity“. Our decentralized economy needs its decentralized banks and savings banks. And, in turn, they need the trust of their customers, which is based on protection systems.

Kolak: The principle of subsidiarity should take precedence.

Reuter: We are – and I can speak for both associations – pro-Europe and pro-capital market and banking union. We need more common ground in Europe. But this must not be confused with the shifting of liability risks.

Reuter: We must activate and collect capital, especially in competition with the US, to finance startups and transformation better than today. But we cannot forego the credit financing of small and medium-sized enterprises in the process. It's about doing one thing without harming the other.

It's not every day that Marija Kolak, who has been serving as President of the Federal Association of German Volksbanks and Raiffeisenbanks (BVR) since 2017, and Prof. Ulrich Reuter, who became President of the German Savings Banks and Giro Association (DSGV) at the beginning of this year, participate in a joint interview. But when it comes to the European deposit insurance issue, there's no daylight between the former board member of the Berlin Volksbank and the long-serving district administrator of the Aschaffenburg district and former president of the Bavarian Savings Banks.