Euro Zone Bank Deposit Insurance

Can measures such as Euro Zone bank deposit insurance save the Euro? The Bank of International Settlements believes so. The Bank of International Settlements in Basel, Switzerland, issued its annual report recently in which it highlights the dire state of the European economy and need for strong measures. A consensus of many central bankers is that governments have been unable or unwilling to take the measures necessary to deal with the current financial crisis, especially in Europe. Thus central banks such as the European Central Bank and the US Federal Reserve have stepped in with never ending economic stimulus measures. The central banks believe that more is necessary in addition to the fact that they have doubled the amount of money that they have put at risk in loans to large commercial banks, roughly a third of the global GDP. The end result of no action on the parts of governments in the EU will be a restructured Euro Zone and, perhaps, the loss of the Euro. The point of Euro Zone bank deposit insurance is that it would reduce the flood of money leaving banks in countries such as Greece, Portugal, Spain, Ireland, and Italy.

The FDIC as a Model for Euro Zone Bank Deposit Insurance

The first national deposit insurance was in the USA. The Federal Deposit Insurance Corporation was established in 1933 during the Great Depression. This was followed in 1970 by a credit union fund, the National Credit Union Share Insurance Fund in 1970. Depositors were guaranteed their money in the event of a bank failure in amounts up to $10,000. This was later increased to $100,000. The FDIC is a national entity. There is Euro Zone bank deposit insurance in existence but the guarantees are by individual nations and the nations may be unable to pay their debts. The Euro Zone bank deposit insurance that the Bank of International Settlements and other are promoting would be backed by the Euro Zone as a whole and not by individual debt ridden nations. These experts believe that such a measure would be an integral part to Euro Zone debt resolution.

How Would Universal Euro Zone Bank Deposit Insurance Affect the Euro?

This is the question that the Forex trader must ask himself. The point, obviously, is to profit from foreign currency trading. First of all it has become increasingly clear that for the European Union to survive intact the various nations need to work together. This includes agreements on controlling the cost of governance and agreements on the provision of funds for bank and government bailouts. Euro Zone bank deposit insurance would allow depositors to keep their money in Greece, Italy, Spain, Portugal, and Ireland without fear of losing their money. However, it would also require oversight of banks in each of these nations by a Euro Zone wide agency. The costs of an all-encompassing bailout will likely be such as drive down the Euro. The benefit of a workable solution will be that the Euro does not disappear as a currency. The longer term benefit will be a more competitive and resurgent European economy and thus a stronger Euro in the long term.