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Options for reforming deposit protection schemes in the EU

  • Gerhardt, Maria
  • Lannoo, Karel
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    With the financial crisis, citizens suddenly realized that different levels and forms of depositor protection co-existed in the EU, whereas they had been told for almost 20 years that a single market was in place. Current deposit insurance arrangements in Europe need to be changed, as they match neither market integration nor consumer expectations. But deposit insurance cannot be considered in isolation; it is part of the broader financial safety net and the crisis resolution tools for banks. Confronted with the question of what action should be taken to draw the right lessons from the crisis, practically the only option is an EU-wide fund, but policy-makers are still hesitant. Any intermediate solution will maintain too many distortions and imperfections and will not provide a coherent response to current challenges. This policy brief reviews current policy discussions on deposit insurance in the EU. It looks at the role of deposit insurance as part of the (European) financial safety net and examines the Commission’s recent proposal to amend the EU Directive on deposit guarantee schemes (DGS). The three options for a European DGS are assessed, followed by conclusions and recommendations.

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    Paper provided by Centre for European Policy Studies in its series ECRI Papers with number 4339.

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    Length: 15 pages
    Date of creation: Mar 2011
    Date of revision:
    Handle: RePEc:eps:ecriwp:4339
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    1. Elena Loukoianova & Gianni De Nicoló & John H. Boyd, 2009. "Banking Crises and Crisis Dating; Theory and Evidence," IMF Working Papers 09/141, International Monetary Fund.
    2. G. G. Garcia, 1999. "Deposit Insurance; A Survey of Actual and Best Practices," IMF Working Papers 99/54, International Monetary Fund.
    3. Demirguc-Kunt, Asli & Kane, Edward J. & Laeven, Luc, 2006. "Deposit insurance design and implementation : policy lessons from research and practice," Policy Research Working Paper Series 3969, The World Bank.
    4. Robert A. Eisenbeis, 2004. "Agency problems and goal conflicts," Working Paper 2004-24, Federal Reserve Bank of Atlanta.
    5. Davide Furceri & Annabelle Mourougane, 2009. "Financial Crises: Past Lessons and Policy Implications," OECD Economics Department Working Papers 668, OECD Publishing.
    6. Beck, Thorsten & Laeven, Luc, 2006. "Resolution of failed banks by deposit insurers : cross-country evidence," Policy Research Working Paper Series 3920, The World Bank.
    7. Charles Goodhart, 2008. "The Regulatory Response to the Financial Crisis," FMG Special Papers sp177, Financial Markets Group.
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