General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
April 11, 2018

ECB published an occasional paper that investigates the potential impact and appropriateness of several features of the European Deposit Insurance Scheme (EDIS) in the steady state. The paper summarizes the rationale, objectives, and challenges related to deposit insurance and illustrates the key features of EDIS, while setting the stage for empirical analysis. It then presents the model for estimation of default probabilities of banks, describes the loss-absorbing mechanism and assumptions, and reports the findings on EDIS exposure. Next, the report discusses the rationale, methodology, and findings of the contributions and cross-subsidization analysis under a full-fledged EDIS. Finally, the paper illustrates the results on contributions and cross-subsidization under a mixed deposit insurance scheme, before setting out conclusions.

The following are the key findings of the investigation:

  • A fully funded Deposit Insurance Fund would be sufficient to cover payouts, even in a severe banking crisis.
  • Risk-based contributions can, and should internalize, specificities of banks and banking systems. This would tackle the moral hazard and facilitate moving forward with risk-sharing measures toward the completion of the Banking Union in parallel with risk reduction measures; this approach would also be preferable to lowering the target level of the Deposit Insurance Fund to take into account banking system specificities.
  • Smaller and larger banks would not excessively contribute to EDIS relative to the amount of covered deposits in their balance sheet.
  • 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 Deposit Insurance Fund. This result holds also when country-specific shocks are simulated.
  • Under a mixed deposit insurance scheme that is composed of national deposit insurance funds bearing the first burden and a European deposit insurance fund intervening only afterward, cross-subsidization would increase relative to a fully fledged EDIS.

The key drivers behind these results are a significant risk-reduction in the banking system, increase in loss-absorbing capacity of banks in the aftermath of the global financial crisis, a super priority for covered deposits, and an appropriate design of risk-based contributions that are benchmarked at the euro area level, following a "polluter-pays" approach.

 

Related Link: Occasional Paper (PDF)

Keywords: Europe, EU, Banking, EDIS, Risk-based Contributions, Cross Subsidization, ECB

Related Articles
News

BCBS Publishes Results of Survey on Proportionality in Bank Regulation

BCBS published a report presenting the results of a survey conducted on proportionality practices in bank regulation and supervision.

March 19, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Third Update for March 2019

EBA published answers to seven questions under the Single Rulebook question and answer (Q&A) updates for this week.

March 15, 2019 WebPage Regulatory News
News

US Agencies Adopt Interim Rule to Facilitate Transfers of Legacy Swaps

US Agencies (FCA, FDIC, FED, FHFA, and OCC) are adopting and inviting comments on an interim final rule.

March 15, 2019 WebPage Regulatory News
News

OCC Updates Recovery Planning Booklet of the Comptroller's Handbook

OCC updated the Recovery Planning booklet of the Comptroller’s Handbook.

March 15, 2019 WebPage Regulatory News
News

EBA Publishes Report on Convergence of Supervisory Practices Across EU

EBA published annual report on the convergence of supervisory practices in EU.

March 14, 2019 WebPage Regulatory News
News

CPMI-IOSCO Publish Update to Level 1 Assessment of PFMI Implementation

CPMI and IOSCO jointly updated the Level 1 Assessment Online Tracker on monitoring of the implementation of the Principles for financial market infrastructures (PFMI).

March 14, 2019 WebPage Regulatory News
News

Agustín Carstens of BIS Speaks About New Role of Central Banks

While speaking at the 20th anniversary conference of the Financial Stability Institute (FSI), Agustín Carstens, the General Manager of BIS, highlighted the need for regulatory actions in light of the continued evolution of financial technology.

March 14, 2019 WebPage Regulatory News
News

PRA Publishes Policy Statement on Group Supervision Under Solvency II

PRA published a policy statement (PS9/19) that provides feedback on responses to the consultation paper CP15/18 and the final supervisory statement SS9/15 (Appendix) on group supervision under Solvency II.

March 14, 2019 WebPage Regulatory News
News

ECB Announces Start Date for Euro Short-Term Rate

ECB announced that it will start publishing the euro short-term rate (€STR) as of October 02, 2019, reflecting the trading activity of October 01, 2019.

March 14, 2019 WebPage Regulatory News
News

PRA Proposes to Update the Pillar 2 Capital Framework for Banks

PRA is proposing (CP5/19) to update the Pillar 2 capital framework to reflect continued refinements and developments in setting the PRA buffer (Pillar 2B).

March 13, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2754