The European Commission (EC) has proposed a new deposit insurance scheme to provide protection for depositors and strengthen banking union in Europe.

European Deposit Insurance Scheme (EDIS) is being designed to reinforce banking union, protect bank depositors and reduce the link between banks and their sovereigns.

The euro area-wide insurance scheme will be based on the existing system, composed of national deposit guarantee schemes set up in line with European rules.

EDIS will be introduced in three stages, including reinsurance phase, co-insurance and full insurance phases.

The three-year re-insurance approach will weaken the link between banks and their national sovereigns, while the co-insurance phase will introduce a higher degree of risk-sharing between national schemes through EDIS.

In the full insurance phase, EDIS will fully insure national DGS by 2024 by gradually increasing the share of risk that EDIS assumes to 100%.

EC Commissioner Lord Hill said: "The crisis revealed the weaknesses in the overall architecture of the single currency. Since then, we have put in place a single supervisor and a single resolution authority.

"Now we need to take steps towards a single deposit guarantee scheme. As we do so, step by step, we need to make sure that risk reduction goes hand in hand with risk sharing. That is what we are determined to deliver."