Completing the Banking Union with a European deposit insurance scheme: who is afraid of cross-subsidization?

2020 ◽  
Vol 35 (101) ◽  
pp. 41-95
Author(s):  
Jacopo Carmassi ◽  
Sonja Dobkowitz ◽  
Johanne Evrard ◽  
Laura Parisi ◽  
André F Silva ◽  
...  
Keyword(s):  
Euro Area ◽  
Deposit Insurance ◽  
Balance Sheet ◽  
Banking Union ◽  
Insurance Fund ◽  
Insurance Scheme ◽  
Data Set ◽  
Banking Systems ◽  
The Impact ◽  
Cross Subsidization

SUMMARY This paper investigates the impact and appropriateness of establishing a fully mutualized European deposit insurance scheme (EDIS) using a unique supervisory micro-level data set on euro area banks’ covered deposits and their other liabilities. We find that an ex-ante funded deposit insurance fund (DIF) with a target size of 0.8% of euro area covered deposits would be sufficient to cover losses even in a severe banking crisis. We then derive risk-based contributions to the DIF based on the different bank- and country-specific factors, showing that they can take into account the relative riskiness of banks and banking systems to tackle moral hazard. We also find that smaller and larger banks would not excessively contribute to EDIS relative to the amount of covered deposits in their balance sheet. Finally, we show that there would be no unwarranted systematic cross-subsidization within EDIS in the sense of some banking systems systematically contributing less than they would benefit from the DIF.

scholarly journals The missing European Deposit Insurance Scheme

2020 ◽  
pp. 151
Author(s):  
Pery Bazoti
Keyword(s):  
Euro Area ◽  
Deposit Insurance ◽  
Banking System ◽  
Banking Union ◽  
The European Union ◽  
Risk Minimization ◽  
Insurance Scheme ◽  
European Banking Union ◽  
European Banking

The European Banking Union embarked as a highly ambitious project of the European Union as a response to the signifi cant fl aws and weaknesses in the original architecture of the European Monetary Union that became apparent during the economic crisis. However, the establishment of a single European banking system has stumbled upon the creation of a common deposit insurance scheme that could safeguard depositors and create a more stable fi nancial framework in the euro area. The European Deposit Insurance Scheme (EDIS) was fi rstly introduced by the European Commission in 2015. As a bold proposal that comprises wide risk mutualization among the euro area member states, it has spurred a vivid discussion in the European public speech and many proposals have been made since then altering its original planning in an effort to tackle the moral hazard concerns that have risen. The present article, after discussing the reasons that keep obstructing EDIS, presents these suggestions that move around, primarily, the role of the national deposit guarantee schemes. However, as highlighted in the article, before moving to any alterations on the structure and role of a proposed common deposit insurance scheme, signifi cant risk minimization on behalf of the national banking systems, must precede by limiting the sovereign exposures of banks and the size of the Non-Performing Loans. Such steps of risk minimization are critical for addressing concerns and the political unwillingness demonstrated by several European countries in moving forward towards deeper integration.

Fiscal discipline will be key part of euro-area reform

2018 ◽  
Keyword(s):  
Euro Area ◽  
Risk Sharing ◽  
Deposit Insurance ◽  
Financial Risk ◽  
Insurance Scheme ◽  
Fiscal Discipline ◽  
German Government ◽  
Content Type ◽  
Institutional Architecture ◽  
The Impact

Subject Options for euro-area reform. Significance As negotiations advance towards the formation of a new German government, talks between Paris and Berlin about a reform of the euro-area’s governance and functioning are also under way. Whatever the new German executive looks like, it will face important choices about the future institutional architecture of the European single currency. Impacts A euro-area budget could buffer future shocks and dampen the impact of economic crises. The prospect of more financial risk-sharing through a deposit insurance scheme may trigger resistance in richer states such as Germany. Deepening the euro-area could intensify reluctance of Eastern member states not in the euro to join.

Euro-area GDP growth will slow in 2019

2019 ◽  
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Balance Sheet ◽  
Lower Growth ◽  
Content Type ◽  
Large Size ◽  
Area Growth ◽  
Risks Assessment ◽  
European Parliament Elections ◽  
The Impact

Subject Reasons behind the euro-area growth slowdown. Significance In its Winter 2019 interim forecasts, the European Commission downgraded its expectations for euro-area growth to 1.3% and 1.6% for 2019 and 2020, respectively, from 1.9% and 1.7% three months earlier. At its January meeting, the ECB Governing Council foreshadowed lower growth, shifting its risks assessment, saying that downside risks will dominate. Impacts The European Parliament elections could have a destabilising impact on growth in some countries. Monetary policy can do nothing to cushion the impact of lower growth caused by trade conflict. In case of recession, monetary policy stimulus will be constrained by the large size of the ECB balance sheet.

scholarly journals RISK TAKING BEHAVIOR OF INDONESIAN BANKS: ANALAYSIS ON THE IMPACT OF DEPOSIT INSURANCE COOPERATION ESTABLISHMENT

2013 ◽  
Vol 15 (3) ◽  
pp. 3-25
Author(s):  
Moch Doddy Ariefianto ◽  
Soenartomo Soepomo
Keyword(s):  
Risk Taking ◽  
Deposit Insurance ◽  
Interest Rate Risk ◽  
Basel Ii ◽  
Data Set ◽  
Explanatory Variables ◽  
Before And After ◽  
Bank Behavior ◽  
Risk Taking Behavior ◽  
The Impact

This paper studies the risk taking behavior of Indonesian Banking Industry, especially before and after the establishment and the implementation of Deposit Insurance Corporation (IDIC). Using common set of explanatory variables; we test several empirical models to reveal the conduct of risk management by banks. In the spirit of BASEL II Accord, this paper take closer look at three types of risk behaviors namely credit risk, market or interest rate risk and operational risk, prior and post the establishment of IDIC. We tested the hypotheses using panel data set of banks operational in period of 2000-2009. The dataset consists of 121 banks with semiannual frequency (2420 observations). Our findings show that these variables explain well the three type bank risk exposures. The implementation of IDIC alters the bank behavior albeit in somewhat different way than initially hypothesized. The risk taking responses also varies across bank types. We found that State Owned Enterprise banks (SOE) behave differently relative to the rest types of the bank. Related to size, SOE banks behave more conservative after the implementation of IDIC. On the other hand its response on conditioned capital post the IDIC implementation is the opposite; they became more aggressive. We view the public pressure on this state banks has influenced the way they manage the risk.Keywords : Risk taking behavior, BASEL II, Deposit Insurance.JEL Classification: G11, G21, G32, C23

scholarly journals Completing the Banking Union with a European Deposit Insurance Scheme: Who is Afraid of Cross-Subsidisation?

2018 ◽  
Author(s):  
Jacopo Carmassi ◽  
Sonja Dobkowitz ◽  
Johanne Evrard ◽  
Laura Parisi ◽  
André F. Silva ◽  
...  
Keyword(s):  
Deposit Insurance ◽  
Banking Union ◽  
Insurance Scheme

Deposit Protection and Bank Resolution

2015 ◽  
Author(s):  
Kleftouri Nikoletta
Keyword(s):  
Financial Stability ◽  
Deposit Insurance ◽  
Global Financial Crisis ◽  
International Standards ◽  
Banking Union ◽  
European Banking Union ◽  
Bank Resolution ◽  
Protection Systems ◽  
The Uk ◽  
The Impact

The 2007–08 global financial crisis proved that the interests of bank depositors are inadequately protected. Although a vast expansion in deposit protection systems around the world followed, our understanding of the impact of those systems and their interaction with bank resolution is still in its infancy. The focus of bank resolution studies has been on the largest systemically important banks, which have wholesale creditors who would be bailed in, leaving retail depositors untouched. However, many banks rely mostly on deposits for financing, and the number of banks of this form is expected to increase. This book aims to explain and provide current material analysis of deposit protection and bank resolution regimes. The analysis is based on an examination of the traditional rationales for creating deposit insurance and bank resolution, and a specific study of the UK, EU, and US legal frameworks. It aims to offer an analysis of this topic and to cover all relevant regulations, from its origins to its most recent developments, in a systematic and thorough way. It approaches the much-desired objective of financial stability from a different angle: that of depositor protection. This book comprises ten chapters, analysing: the rationales for creating a deposit protection system; the limitations of deposit protection systems; the European deposit insurance framework; the European banking union; recent cases on deposit guarantee schemes; international standards on deposit insurance; the UK deposit insurance framework; international and European regulatory developments on bank resolution; the UK Special Resolution Regime; and the US paradigm.

The opportunity for euro-area reform is closing

2019 ◽  
Keyword(s):  
Euro Area ◽  
Deposit Insurance ◽  
Insurance Coverage ◽  
Burden Sharing ◽  
Banking Union ◽  
Governance Reform ◽  
Content Type ◽  
European Banking Union ◽  
European Banking ◽  
The Eu

Subject Euro-area governance. Significance In the EU, macroeconomic governance reform is focusing around the creation of a euro-area budget and a European Deposit Insurance Scheme (EDIS) -- the final pillar for the completion of the European Banking Union (EBU) which would provide stronger insurance coverage for member states. However, northern countries are reluctant to pay for crisis-prone ones in the south, so compromise on detail could take years while the initiatives will have limited scope in responding to crises. Impacts The ECB’s Single Supervisory Mechanism will continue to focus on ‘risk reduction’ measures, including the disposal of non-performing loans. The EU is unlikely to give Italian budget concessions perceived as acceptable by Rome, possibly hardening the position of Italy’s populists. If Manfred Weber’s candidacy to become European Commission president fails, Berlin will likely insist that it gets the ECB president post. The rise of migration flows in the Mediterranean and the lack of EU resolution on burden-sharing will worsen north-south relations.

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