General Information & Client Services
  • 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 Insights

EBA Single Rulebook Q&A: First Update for November 2018

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

November 09, 2018 WebPage Regulatory News

FED Finalizes the Large Financial Institution Rating System

FED finalized the new supervisory rating system for Large Financial Institutions (LFIs), to better align with the current supervisory programs and practices for these firms.

November 09, 2018 WebPage Regulatory News

EIOPA Publishes Result of the Work of EU-US Insurance Dialog Project

EIOPA published four papers resulting from the work of the EU–U.S. Insurance Dialog Project (EU-U.S. Project) in 2018.

November 08, 2018 WebPage Regulatory News

EIOPA Publishes Q&A on Regulations in November 2018

EIOPA published new sets of questions and answers (Q&A) on implementing and delegated regulations applicable to insurers in Europe.

November 07, 2018 WebPage Regulatory News

ECB Publishes Version 1.3 of AnaCredit Validation Checks

ECB published Version 1.3 of the AnaCredit validation checks.

November 05, 2018 WebPage Regulatory News

OCC Proposes to Revise Regulatory Reporting Requirements for Banks

OCC is consulting on revisions to the regulatory reporting requirements on the company-run annual stress test reporting by national banks and federal savings associations.

October 31, 2018 WebPage Regulatory News

FED Consults on Tailoring Regulatory Rules Based on Bank Risk Profiles

FED published two proposals—one by FED and the other one jointly issued with OCC and FDIC—that would create four tiers or categories of banks based on their risk profiles.

October 31, 2018 WebPage Regulatory News

EBA Publishes Guidance on Non-Performing and Forborne Exposures in EU

EBA publishes the final guidelines on the management of non-performing and forborne exposures in EU.

October 31, 2018 WebPage Regulatory News

HKMA Publishes FAQs on AML/CFT Requirements for Banks

The Hong Kong Association of Banks (HKAB), with input from HKMA, published a set of frequently asked questions (FAQs) in relation to anti-money laundering and counter-financing of terrorism (AML/CFT).

October 31, 2018 WebPage Regulatory News

ESMA Updates Bond Liquidity Data Under MiFID II/MiFIR

ESMA issued new data for bonds subject to the pre- and post-trade requirements of the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) through its data register.

October 31, 2018 WebPage Regulatory News
RESULTS 1 - 10 OF 2178