Scholz misses important half of the balance sheet
From Peter D Hahn, Dean, Henry Grunfeld Professor of Banking, The London Institute of Banking & Finance, UK
Olaf Scholz offers a big step forward towards pan-European banking with his suggestions on a common depositor guarantee scheme and other liability side of the balance sheet advances related to resolution, such as a common insolvency regime for debt and equity investors (“Germany will consider EU-wide bank deposit reinsurance”, November 6). However, he misses the critical need on the asset side of the balance sheet which banks ultimately depend on for their profits.
Beyond sovereign lending, pan-European banking needs pan-European common creditor and debtor protections. These would facilitate a bank in France lending to an Italian business. A common deposit insurance would facilitate an Italian bank raising money in France, but would that really improve loan ability in Italy or simply lower the cost of funds for the bank?
A half-century ago, US states adopted their uniform commercial code (UCC), a form of common creditor protection, which greatly facilitated national banking when it was later permitted. Mr Scholz notes the US Federal Deposit Insurance Corporation as a model. I suggest his efforts won’t succeed without looking at the UCC.