The International Monetary Fund on Saturday called for an EU-wide deposit insurance scheme and more coordinated regulation of the continent’s banks to avoid contradictory national regulation exacerbating the region’s debt crisis. Global markets have been rocked in recent weeks by fears the euro zone sovereign debt crisis could cause a pan-European banking crisis, prompting some European leaders to call for the joint recapitalization of the continent’s largest banks. A common bank crisis management system, a supra-national supervisory regime and common deposit insurance rules would significantly stabilize the continent’s banking system, said. Ajai Chopra, the deputy director of the IMF’s European Department. “These elements are mutually reinforcing and their adoption would help address the deep intertwining between sovereign and domestic banks’ balance sheets that has proved so damaging to financial stability,” Chopra said during a speech in Kenmare, a small town in southwestern Ireland. “Market tensions are fueled by a perceived lack of cohesion by European policy makers and concerns about the resilience of banks and the speed of adjustment at the country level.” Chopra is in Ireland for the country’s latest quarterly review under its 85 billion euros EU-IMF bailout. The outcome of the review will be published late next week. He said a deposit insurance scheme should be complimented by an increased harmonization of deposit insurance schemes in the member states. EU leaders should introduce a binding bank crisis management and resolution regime, he added. A European resolution authority covering all banks and backed by a common backstop at the EU level would end the need for national financing, he said.
