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

    EBA Provides Clarity on Implementation of Certain COVID-19 Policies

    EBA published a report on the implementation of selected COVID-19 policies within the prudential framework for banking sector.

    July 07, 2020 WebPage Regulatory News
    News

    BCBS Report Examines Progress on Adoption of Basel III Framework

    BCBS published the eighteenth progress report on implementation of the Basel III regulatory framework in member jurisdictions.

    July 06, 2020 WebPage Regulatory News
    News

    BCBS Amends Guidelines on Sound Management of AML/CFT Risks

    BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).

    July 02, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Amendments to Swap Margin Rule

    US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.

    July 01, 2020 WebPage Regulatory News
    News

    PRA Letter Sets Expectations on Approach to Managing Climate Risks

    PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.

    July 01, 2020 WebPage Regulatory News
    News

    EBA Guidelines on Treatment of Structural Foreign Exchange Under CRR

    EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).

    July 01, 2020 WebPage Regulatory News
    News

    FSB Issues Statement on Impact of COVID-19 Crisis on Benchmark Reform

    FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS Publishes List of Internationally Active Insurance Groups

    IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.

    July 01, 2020 WebPage Regulatory News
    News

    FED Temporarily Revises FR Y-9C With Respect to PPPLF and CARES Act

    FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).

    July 01, 2020 WebPage Regulatory News
    News

    EC Launches Consultation on Review of Solvency II Directive

    EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.

    July 01, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5433