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Structuring Deposit Insurance for a United Europe

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  • Anthony M. Santomero
  • Jeffrey J. Trester

Abstract

This paper analyses the difficulties associated with imposing a unified deposit insurance scheme in a unified Europe. Specifically, it investigates the determinants of optimal deposit insurance in light of the Commission's 1994 decision requiring mandatory minimum coverage and encouraging a single unified deposit insurance structure. Issues of deposit insurance premiums and tax burden are analysed in the context of a general equilibrium‐type model. The results indicate that taxes, the optimal degree of deposit insurance, and societal risk aversion are all interrelated in such a structure. Therefore, a common insurance system may not be feasible nor appropriate for a first best solution; co‐ordination and even unified taxation may be necessary. At the minimum, exceedingly close macroeconomic policy co‐ordination will be necessary for the single market for financial services to come to fruition and achieve stability.

Suggested Citation

  • Anthony M. Santomero & Jeffrey J. Trester, 1997. "Structuring Deposit Insurance for a United Europe," European Financial Management, European Financial Management Association, vol. 3(2), pages 135-154, July.
    • Handle: RePEc:bla:eufman:v:3:y:1997:i:2:p:135-154
    DOI: 10.1111/1468-036X.00036
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    Cited by:

    1. Richard J. Herring & Anthony M. Santomero, 2000. "What Is Optimal Financial Regulation?," Center for Financial Institutions Working Papers 00-34, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Matthias Bank & Jochen Lawrenz, 2013. "Deposit Finance as a Commitment Device and the Optimal Debt Structure of Commercial Banks," European Financial Management, European Financial Management Association, vol. 19(1), pages 14-44, January.
    3. Xavier Freixas & Anthony M. Santomero, 2002. "An overall perspective on banking regulation," Working Papers 02-1, Federal Reserve Bank of Philadelphia.
    4. Anthony Santomero, 1997. "Commercial Bank Risk Management: An Analysis of the Process," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(2), pages 83-115, October.
    5. Anthony M. Santomero, 1997. "Deposit Insurance: Do We Need It and Why?," Center for Financial Institutions Working Papers 97-35, Wharton School Center for Financial Institutions, University of Pennsylvania.
    6. Roger Owusu-Boafo & Ernest Obeng & Jone Yeobah Addo, 2020. "The Relationship Between Credit Risk Management and the Profitability of Banks in Ghana," ACTA VSFS, University of Finance and Administration, vol. 14(2), pages 92-114.
    7. Klaus Schaeck & Martin Cihák, 2012. "Banking Competition and Capital Ratios," European Financial Management, European Financial Management Association, vol. 18(5), pages 836-866, November.

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