AuthorDobkowitz, Sonja; Evrard, Johanne; Carmassi, Jacopo; Silva, André; Parisi, Laura; Wedow, Michael
ECB Occasional Paper Series No 208 / April 2018
On 24 November 2015, the European Commission published a proposal to establish
a European Deposit Insurance Scheme (EDIS). The proposal provides for the
creation of a Deposit Insurance Fund (DIF) with a target size of 0.8% of covered
deposits in the euro area and the progressive mutualisation of its resources until a
fully-fledged scheme is introduced by 2024. This paper investigates the potential
impact and appropriateness of several features of EDIS in the steady state. The
main findings are the following: first, a fully-funded DIF would be sufficient to cover
payouts even in a severe banking crisis. Second, risk-based contributions can and
should internalise specificities of banks and banking systems. This would tackle
moral hazard and facilitate moving forward with risk sharing measures towards the
completion of the Banking Union in parallel with risk reduction measures; this
approach would also be preferable to lowering the target level of the DIF to take into
account banking system specificities. Third, smaller and larger banks would not
excessively contribute to EDIS relative to the amount of covered deposits in their
balance sheet. Fourth, there would be no unwarranted systematic
cross-subsidisation within EDIS in the sense of some banking systems
systematically contributing less than they would benefit from the DIF. This result
holds also when country-specific shocks are simulated. Fifth, under a mixed deposit
insurance scheme composed of national deposit insurance funds bearing the first
burden and a European deposit insurance fund intervening only afterwards,
cross-subsidisation would increase relative to a fully-fledged EDIS.
The key drivers behind these results are: i) a significant risk-reduction in the banking
system and increase in banks' loss-absorbing capacity in the aftermath of the global
financial crisis; ii) a super priority for covered deposits, further contributing to protect
EDIS; iii) an appropriate design of risk-based contributions, benchmarked at the euro
area level, following a "polluter-pays" approach.
Keywords: European Deposit Insurance Scheme (EDIS), risk-based contributions,
JEL codes: G21, G28.

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