EU proposes savings bank exemption from deposit guarantee scheme - paper

FRANKFURT (Reuters) - European Commission President Jean-Claude Juncker has proposed that savings banks and cooperative banks be made exempt from a European guarantee for bank deposits, a German newspaper reported.

The proposal may help to win German approval for such a system, which is highly controversial in the country because it is seen as a scheme under which money to guarantee German deposits could be used to rescue savers elsewhere.

"The cooperative banks and savings banks will not be touched by the deposit guarantee," Frankfurter Allgemeine Zeitung quoted Juncker as saying at an event in Germany.

Juncker told the paper that it was "people who did not follow the virtues of a social market economy" who caused the financial crisis and cooperative banks and savings banks were not to blame.

The commission intends to set up a European guarantee for bank deposits based on a reinsurance system for national schemes.

EU states are already obliged to protect bank deposits up to 100,000 euros, but with several credit institutions underperforming there are concerns that this guarantee may not be enough in some states.

The reinsurance system will guarantee national deposit protection schemes and the Commission plans to set out details in a legislative proposal before the end of the year.

The joint scheme would be the third and final pillar of the European banking union project, which has resulted in the setting up of a common supervisory body ]for banks and a shared resolution mechanism for troubled credit institutions.

(Reporting by Arno Schuetze; Editing by David Goodman)