The guaranteed deposits in the EU can act as a lever for the growth of the Eurozone economy. Also, with the appropriate framework, the guaranteed deposits in the EU can lead the economies of euro area member countries in the budgetary-fiscal convergence between them.
The Eurozone of EU has set the bar very high in terms of the amount of guaranteed deposits. That is, guaranteed individual deposit up to €100000.
The general framework for the rescue of a systemic bank in the Eurozone
The Eurozone/EU, in general, has set a proper framework for who must bear the cost of rescuing a systemic bank. But a better-processed framework could offer much greater momentum to the development of the euro area’s banking system and to the development of the Eurozone economy itself.
by Thanos S. Chonthrogiannis
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Based on the decisions of the Eurozone/EU, the rescue of a systemic bank will must be borne by:
1. Originally its owners, i.e. its shareholders,
2. Then the bondholders and generally its creditors,
3. And in the end its depositors with individual deposits greater than €100000 (individual deposits up to €100000 are guaranteed by the Eurozone/EU).
This frame is right, but it could be even better in the last part of it, namely depositors, who last in the hierarchy of the burden of rescuing a systemic bank, will must with individual deposits over €100000 to bear the burden of its rescue.
In my opinion, guarantees from the Eurozone for individual deposits of up to €100000 are a very large size. Since we consider that it is very difficult at this moment to have a member-state of the Eurozone that can guarantee its territory, for example, 25% of its total deposits for individual deposits of up to €100000.
The proposed amount of the guaranteed individual deposit to be valid in the Euro area/EU
For this reason, I believe that there will must be a guarantee for individual deposits of up to €60000 and then there is a reward system for depositors that raises the limit of the guaranteed individual deposit to €100000, but even beyond that amount.
In the process of prioritizing banks’ resolution costs, whether systemic or not, will must be used deposits with amounts over €60000 per individual deposit, if none of the accompanying terms present in the following paragraphs.
If, however, the depositors meet the specific accompanying terms then and only then the Guaranteed Amount per individual deposit will be able to reach and exceed €100000. More specifically, per individual deposit we have guaranteed amount ׃
The proposed framework for the guaranteed individual deposit for Businesses (Legal Persons) in the Eurozone/EU
1. Enterprises with number of employees > 250.
-Fully guaranteed amount for individual deposit ≤ €60000.
-Fully guaranteed the amount of individual deposit relating to the payroll of one month of employees of the company regardless of the amount of this deposit.
The company is responsible for proving to the bank that the amount of the deposit always concerns the payroll of the current month and that this is equivalent to the total payroll of the employees of the company for the current month.
If the amount of the deposit exceeds the salary amount of one month for all employees, the excess amount will not be covered by the deposit guarantee.
One month’s payroll will must include the corresponding amounts of the company’s social security contributions to the employees’ social security funds.
-Fully guaranteed deposit amount, €60000 < personal deposit ≤ €100000,
If,
1) The company has in effect private health benefits insurance (scheme) and a system of occupational training for all its employees and
2) The company participates in a corporate social responsibility (CSR) program on an annual basis, which will have to be demonstrated.
-Fully guaranteed the amount of individual deposit > €100000 and up to a ceiling,
Where the guarantee in the amount of the deposit is increased according to the percentage of the investment of the company’s assets in government bonds.
Example,
€100000 < Guaranteed individual deposit amount ≤ €200000
If X1 % of the company’s assets are invested in government bonds and are held by the company on an annual basis.
€200000 < Guaranteed individual deposit amount ≤ €300000
If, X2 % of the company’s assets are invested in government bonds and are held by the company on an annual basis. where X2 >X1.
€300000 < Guaranteed individual deposit amount ≤ €400000
If, X3 % of the company’s assets are invested in government bonds and are held by the company on an annual basis. where X3>X2 etc.
where X1 < X2 < X3, ……, X n-1, X n, with n = 1.2, ……, ν
The amount of the guaranteed individual deposit can be increased by increasing the corresponding assets of the company invested in government bonds and up to a ceiling.
The percentages X1%, X2%….X n, %, in which companies will have to invest their assets in government bonds to increase the guarantee of the amount per individual deposit, will be determined solely by ECB, on an annual basis, and for the entire Eurozone.
Subsequently, since these capital assets of companies invested in government bonds to increase the amount of guaranteed individual deposit, liquidated and used in the company’s investments within the Eurozone, would they become tax-free in their entirety.
When, in the future, the financial, fiscal and economic integration of the Euro area is fully achieved, and then takes place the issuance of the Euro T-bills & Eurobonds by the ECB, the companies will have to invest their respective assets in Eurobonds to increase the guarantee in their individual deposit amounts.
Until that time comes, investing in government bonds in order to increase the guarantee of the amount of individual deposits of enterprises will must not be subject to geographic constraints if the investment is made in Treasury bonds of any member-state of the Eurozone.
In other words, a company based in Italy, for example, will be able, if it so wishes, to invest part-percentage of its assets in bonds, e.g. of the Dutch state, rather than in Italian government bonds to increase the guaranteed amount per individual deposit.
At the same time, it will enjoy the same power acquired-as a guarantee in the amounts of deposits, which deposits can be found in banks in Italy. Essentially, the guarantee in the amounts per deposit will have the same effect as either the company invests its assets in government bonds of the Italian state or in Dutch government bonds, irrespective of which Eurozone member-state are found the company deposits.
In this case, member-states of the Mediterranean Eurozone/EU will very likely find that capital of companies based and active in their countries is invested in the safest reserves of sovereign bonds of the member-states of the Northern Eurozone/EU.
In order to reverse this prospect and persuade the Mediterranean and Southern Eurozone companies to invest part of their assets in the sovereign bonds of these Eurozone member-states where they are based and active, these member-states will have to acquire Governments whose permanent concern will be to improve the macroeconomic and budgetary-fiscal elements of their economies.
The primary concern of these Governments should therefore be to eliminate budget deficits in their state budgets and thus reduce their public debts and always within the framework of the Maastricht Treaty ( December, 1991) (or Treaty of the European Union (Feb1992), Source of׃ http://europa.eu/eu-law/decision-making/treaties/pdf/treaty-on-european_union/treaty_on_european_union_el.pdf, 29/7/2015) and the New Stability and Growth Pact (Source E.E., http://ec.europa.eu/economy-finance/economic_governance/sgp/index.el.htm , 3/8/2015).
In fact, with this proposed framework-strategy that I am presenting, it creates a powerful incentive for the governments of the member-states of both the Southern Eurozone and the Eurozone as a whole, to steer and maintain their economies always on a sound budgetary-fiscal trajectory.
This strategy will evaporate the risk of future bankruptcy of the member-states of the Southern Eurozone and thus will set the risk of investing in government bonds in these Euro area member-states to zero, making it budgetary-fiscal convergence in the Euro area faster and more compact.
2. Enterprises with number of employees ≤ 250.
-Fully guaranteed individual deposit amount ≤ €60000.
-Fully guaranteed the amount of individual deposit relating to the payroll of one month of employees of the company irrespective of the amount of this individual deposit.
The company is responsible for proving to the bank that the amount of the deposit relates only to the payroll of the current month and that this amount is always equal to the total payroll of the employees of the company for the current month.
If the amount of the deposit exceeds the salary amount of one month for all employees, the excess amount will not be covered by the deposit guarantee.
The monthly payroll shall include the corresponding amounts of the company’s social security contributions to the employees’ social security funds.
-Fully guaranteed deposit amount, €60000 < personal deposit ≤ €100000
If,
1) The company has in effect private health benefits insurance for all its workers,
2) The company will must undertake a retraining of a specific proportion of its employees every year, which will must be proved.
-Fully guaranteed individual deposit amount > €100000,
Where the guarantee in the amount of the deposit is increased according to the degree of retention of existing jobs and the rate of recruitment of new employees from the company on an annual basis.
Specifically,
€100000< Guaranteed individual Deposit Amount ≤ €200000
If existing jobs are kept in the enterprise on an annual basis, and K1% the percentage of new recruitments on all employees of the company, on an annual basis.
€200000< Guaranteed individual Deposit Amount ≤ €300000
If existing jobs are maintained on an annual basis and K2% the percentage of new recruitments on all employees of the company, on an annual basis. With Κ2>Κ1.
€300000< Guaranteed individual Deposit Amount ≤ €400000
If existing jobs are maintained on an annual basis and K3% the percentage of new recruitments on all employees of the company, on an annual basis. With Κ3>Κ2, etc.
where K n >K (n-1) >……., K3>K2>K1 etc. with n=1, 2……ν
By placing such conditions, incentives are given to businesses to increase the guaranteed amount of their individual deposits to banks, while offering the most to their employees but also to the society that they are activated in generally.
The proposed framework for guaranteed individual deposit for individuals in the Euro area/EU
This category of natural persons will must include individual enterprises and freelancers.
-Fully guaranteed individual deposit amount ≤ €60000.
-Fully guaranteed deposit amount, €60000< Individual Deposit ≤ €100000,
If,
1) The holder of the deposit has in effect private health benefits insurance for him and his family and
2) He pays for himself a private pension scheme or collects on a constant basis his money in a savings account credit institution.
The beneficiary of private insurance will enjoy a 100% tax exemption on the amount of the annual premiums it pays.
By setting this framework of guaranteed individual deposit in the Euro area of EU for natural persons we support private insurance, private pension schemes and more generally private savings.
If the above conditions are not met by category of Businesses (legal persons) or natural persons, the minimum amount of individual deposit that will must be guaranteed in all cases will must be up to €60000 per individual deposit.
If necessary and requested, the natural person depositor will be required to contribute to the rescue of the bank, but the legal persons depositors are first in this rescue.
