Quantitative analysis on selected deposits insurance issues for purposes of impact assessment

The EU bank crisis management and deposit insurance (CMDI) framework lays out the rules for handling bank failures, while preserving financial stability, protecting depositors, and aiming to avoid the risk of excessive use of public financial resources. Notwithstanding the progress achieved in promoting a stable and integrated financial system, the objective of shielding public money from the effect of bank failures is only partially achieved. The evaluation of the current rules to handle a banking failure has in fact identified potential issues with the framework’s design, implementation, and application. The review of the CMDI framework should provide solutions to address these issues and enable the framework to fully achieve its objectives and be fit for its purpose. Notably, the revision calls for a further harmonization of insolvency law to increase its efficiency and overall coherence to manage bank crises in the EU, as well as to enhance the level of depositor protection, including the creation of a common depositor protection mechanism (European Deposit Insurance Scheme, EDIS). The following report covers in particular three aspects closely related to the Deposit Insurance design and efficiency which are mentioned in the review: the potential coverage of temporary high deposit balances (THDBs), the effectiveness and pooling effect of the EDIS, and the assessment of alternative methodologies to compute risk-based contribution to a common European Deposit Insurance Fund.