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Cross-border banking: challenges for deposit insurance and financial stability in the European Union

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  • Robert A. Eisenbeis
  • George G. Kaufman

Abstract

This paper examines the implications that alternative regulatory structures may have for resolving failed banking institutions. We place our emphasis on the European Union (EU), which is both economically and financially large and has several features relating to cross-border banking in the form of direct investment that may heighten the problems we consider. We propose four principles to ensure the efficient resolution of bank failures, should they occur, with minimum, if any, credit and liquidity losses. These principles include prompt legal closure of institutions before they become economically insolvent, prompt identification of claims and assignment of losses, prompt reopening of failed institutions, and prompt recapitalizing and reprivatization of failed institutions. Finally, we propose a mechanism to put such a scheme into place quickly in the case where a cross-border banking organization seeks to take advantage of the liberal cross-border branching provisions in the single banking license available to banks in the EU. In return for the privilege of such a license, the bank agrees to be subject to a legal closure rule as a positive capital ratio established by the EU or the home country.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2006-15.

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Date of creation: 2007
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Handle: RePEc:fip:fedawp:2006-15

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  1. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309, October.
  2. Peek, Joe & Rosengren, Eric S, 1997. "The International Transmission of Financial Shocks: The Case of Japan," American Economic Review, American Economic Association, vol. 87(4), pages 495-505, September.
  3. Armen Hovakimian & Edward Kane & Luc Laeven, 2003. "How Country and Safety-Net Characteristics Affect Bank Risk-Shifting," Journal of Financial Services Research, Springer, vol. 23(3), pages 177-204, June.
  4. Kane, Edward J., 2003. "What kind of multinational deposit-insurance arrangements might best enhance world welfare?," Pacific-Basin Finance Journal, Elsevier, vol. 11(4), pages 413-428, September.
  5. Sander Osterloo & Dirk Schoenmaker, 2004. "Financial Supervision in an Integrating Europe: Measuring Cross-Border Externalities," FMG Special Papers sp156, Financial Markets Group.
  6. Schüler, Martin, 2003. "Incentive Problems in Banking Supervision: The European Case," ZEW Discussion Papers 03-62, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Dirk Schoenmaker & Charles Goodhart, 2006. "Burden Sharing in a Banking Crisis in Europe," FMG Special Papers sp164, Financial Markets Group.
  8. George Kaufman, 2004. "Bank regulation and foreign-owned banks," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 67, june.
  9. Maximilian J. B. Hall, 2001. "How good are EU deposit insurance schemes?," Proceedings 732, Federal Reserve Bank of Chicago.
  10. Robert A. Eisenbeis & Larry D. Wall, 2002. "Reforming deposit insurance and FDICIA," Economic Review, Federal Reserve Bank of Atlanta, issue Q1, pages 1-16.
  11. Richard Dale, 2000. "Deposit Insurance in Theory and Practice," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  12. Xavier Vives, 2001. "Restructuring Financial Regulation in the European Monetary Union," Journal of Financial Services Research, Springer, vol. 19(1), pages 57-82, February.
  13. Linda S. Goldberg, 2007. "Financial sector FDI and host countries: new and old lessons," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 1-17.
  14. Thomas E. Pulkkinen & Eric S. Rosengren, 1993. "Lessons from the Rhode Island banking crisis," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 3-12.
  15. Mayes, David G., 2004. "Who pays for bank insolvency?," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 515-551, April.
  16. Robert A. Eisenbeis & George G. Kaufman, 2005. "Bank crisis resolution and foreign-owned banks," Economic Review, Federal Reserve Bank of Atlanta, issue Q4, pages 1-18.
  17. Robert Marquez & Giovanni Dell'Ariccia, 2001. "Competition Among Regulators," IMF Working Papers 01/73, International Monetary Fund.
  18. Edward J. Kane, 1991. "Financial Regulation and Market Forces," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 127(III), pages 325-342, September.
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