Principles of a Two-Tier European Deposit (Re-)Insurance System
AbstractThere is general agreement that banking supervision and resolution have to be organised at the same level. It is often argued, however, that there is no need to tackle deposit insurance because it is too politically sensitive. This note proposes to apply the principles of subsidiarity and re-insurance to deposit insurance: Existing national deposit guarantee schemes (DGSs) would continue to operate much as before (with only minimal standards set by an EU directive), but they would be required to take out re-insurance against risks that would be too large to be covered by them. A European Reinsurance Fund (EReIF) would provide this reinsurance financed by premia paid by the national DGSs, just as any reinsurance company does in the private sector. The European Fund would pay out only in case of large losses. This ‘deductible’ would provide the national authorities with the proper incentives, but the reinsurance cover would stabilize depositor confidence even in the case of large shocks. Ideally the national DGSs would be responsible also for resolution. Experience has shown banking systems are more stable if deposit insurers are also responsible for resolution. The approach proposed here could thus be also used to design the ‘Single Resolution Mechanism’ (SRM) which is being discussed as a complement to the ‘Single Supervisory Mechanism’ (SSM). It will of course take time to build up the funding for such a reinsurance fund. This approach is thus not meant to deal with legacy problems from the current crisis.
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Bibliographic InfoPaper provided by Centre for European Policy Studies in its series CEPS Papers with number 7958.
Length: 11 pages
Date of creation: Apr 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-EEC-2013-06-16 (European Economics)
- NEP-IAS-2013-06-16 (Insurance Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Jean Pisani-Ferry & Guntram B. Wolff, 2012. "The fiscal implications of a banking union," Policy Briefs 748, Bruegel.
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