Germany, Switzerland Should Scrap Unlimited Guarantees, FSB Says
Germany and Switzerland should revoke financial guarantees they gave to some local banks because the measures could lead to “greater risk-taking,” the Financial Stability Board said in a report published on its website.
Such guarantees amount to “unlimited” protection of bank deposits from loss and “should be avoided,” the FSB said in the report, which examines national programs to protect savers.
The unlimited guarantees apply to German cooperative and savings banks and some Swiss cantonal lenders, according to the group, which includes regulators, central bankers and finance ministry officials from the Group of 20 countries.
Nations rushed to guarantee bank deposits in response to the worldwide credit crunch that began in 2007 and prevent bank runs such as that experienced by Northern Rock Plc. Ireland was criticized by German Chancellor Angela Merkel during the crisis for unilaterally increasing the size of the deposits that it guaranteed, leading savers to shift accounts from other European Union nations.
To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net
To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net
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