Completing Banking Union? Supranational Deposit Insurance after the Eurozone Crisis

This paper analyses the development of the political and economic conditions for the missing third pillar of the Banking Union, the European Deposit Insurance Scheme (EDIS). I employ a theoretical combination of liberal intergovernmentalism added by neofunctionalist spill-overs in order to assess the shifts in preference formation and bargaining power in Germany, Italy, and France as well as the impact that spill-overs have on them for the period since 2016. Based on an analysis of published documents and expert interviews, I trace the interests of domestic banking sectors, the stance of national governments and regulatory bodies as well as the influence of supranational institutions and functional pressure. I argue, that some alignment of national preferences in favour of a reinsurance system, instead of a fully-fledged EDIS has occurred, as French and Italian banks prefer current Deposit Guarantee Schemes over a completely integrated version of EDIS. In Germany, the staunch opposition against a fully-fledged EDIS remains, due to domestic interests to maintain institutional protection schemes and less because of moral hazard concerns. In terms of intergovernmental bargaining, I argue that Germany played a chicken game of continuous demands for increasing risk-reduction, which linked EDIS to progress in risk-reduction. But this chicken game is off-set by renewed functional pressure for policies that can help to stabilise the Eurozone, as the Italian government causes new uncertainty over the future of the Eurozone. Moreover, the French proposals for far-reaching reforms of the Eurozone have shifted the circumstances for intergovernmental bargaining. They paved the way for new momentum on less controversial issues, which brought EDIS back on the political agenda. This in turn, has allowed the Commission and the ECB to leverage on the new political situation by engaging in agenda setting and acting as policy entrepreneurs.