Abstract

• Author: Dobkowitz, Sonja; Evrard, Johanne; Carmassi, Jacopo; Silva, André; Parisi, Laura; Wedow, Michael
• Pages: 2-2

ECB Occasional Paper Series No 208 / April 2018

2

Abstract

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,

cross-subsidisation.

JEL codes: G21, G28.