Featured Product

    ECB Publishes A Paper Examining the European Deposit Insurance Scheme

    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

    SEC Finalizes Capital and Margin Requirements for Security-Based Swaps

    SEC adopted a package of rules and rule amendments to establish capital, margin, and segregation requirements for security-based swaps, under Title VII of the Dodd-Frank Act.

    August 22, 2019 WebPage Regulatory News
    News

    ECB Revises Prudential Provisioning Expectations for New NPEs

    ECB is revising its supervisory expectations for prudential provisioning of new non-performing exposures (NPEs) specified in the “Addendum to the ECB Guidance to banks on non-performing loans” (Addendum)

    August 22, 2019 WebPage Regulatory News
    News

    CFTC Proposes to Revise Information Collection on Margin Requirements

    CFTC is requesting comments on the burdens associated with certain aspects of the Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants (final rule).

    August 21, 2019 WebPage Regulatory News
    News

    FASB to Delay Effective Date for Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant all insurance companies that issue long-duration contracts, such as life insurance and annuities, additional time to apply the standard that addresses this area of financial reporting.

    August 21, 2019 WebPage Regulatory News
    News

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.9

    EBA published phase 2 of its technical package on the reporting framework 2.9, which includes validation rules, Data Point Model (DPM) data dictionary, and XBRL taxonomies.

    August 21, 2019 WebPage Regulatory News
    News

    FSB Publishes Responses to Its Consultation Related to SME Financing

    FSB published responses received to the consultation on a report on the evaluation of the effects of financial regulatory reforms on small and medium-sized enterprise (SME) financing.

    August 21, 2019 WebPage Regulatory News
    News

    APRA Revises Related Entities Standard for Banks

    APRA published a strengthened prudential standard APS 222 on associations with related entities, with the aim to mitigate contagion risk within banking groups.

    August 20, 2019 WebPage Regulatory News
    News

    EBA and ESMA Issue Joint Response to EC Letter on Crypto-Assets

    EBA and ESMA issued a joint response to the EC letter, from July 19, 2019, on crypto-assets.

    August 20, 2019 WebPage Regulatory News
    News

    FSB on Responses to Consultation on Wind-Down of Trading Portfolios

    FSB published responses received to the consultation on the solvent wind-down of the derivatives and trading book portfolio of a global systemically important bank (G-SIB).

    August 19, 2019 WebPage Regulatory News
    News

    FSB Publishes Responses to Consultation on Resolvability Disclosures

    FSB published responses received to the consultation on disclosures for resolution planning and resolvability of banks.

    August 19, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3681