AuthorDobkowitz, Sonja; Evrard, Johanne; Carmassi, Jacopo; Silva, André; Parisi, Laura; Wedow, Michael
ECB Occasional Paper Series No 208 / April 2018
7 Conclusions
The analysis in this paper provides five main insights which support the policy
discussion on the introduction of a European Deposit Insurance Scheme.
First, a fully-funded deposit insurance fund with ex-ante contributions of 0.8% of
covered deposits (€38 billion in the sample analysed) would be sufficient to cover
payouts even in case of hypothetical losses much higher than the losses
experienced during the last crisis (2007-2009). Considering a scenario where the
riskiest 3% of euro area banks fail simultaneously and only MREL-eligible liabilities
are bailed-in (with the exception of large corporate deposits above €100,000), losses
in resolution and insolvency up to, respectively, 15% and 22.5% of banks’ total
assets are not enough to create exposures of the DIF in any country. The same
conclusion is reached when considering a scenario where the 10% riskiest banks in
the euro area simultaneously fail and are all affected by losses in resolution equal to
5%, 10% and 15% of total assets (corresponding to 7.5%,15% and 22.5% losses in
insolvency). These loss scenarios are considerably more severe than historical
losses both in Europe and in the United States, including the recent global financial
crisis. Exposures of the DIF are triggered only in case of an extremely severe crisis,
where the 3% or 10% riskiest banks simultaneously fail and are all affected by losses
in resolution at least equal to 20% of total assets, (corresponding to losses in
insolvency of 30%). Even in this extreme case, however, the DIF is never depleted.
Second, the specificities of banks and, as a result, also of banking systems can be
taken into account in the risk-based contributions to the deposit insurance fund,
which is preferable to the lowering of the EDIS target level. The methodology used in
this paper follows the EBA Guidelines for national DGS contributions but is applied to
all participating banks within the scope of EDIS to ensure that a bank’s risk profile is
compared to its peers across the entire banking union rather than only within each
national banking system. The features of banks and banking systems can be
appropriately reflected in the risk-based contributions using a “polluter pays”
approach. This would have the benefit of keeping the credible target level of EDIS,
which has been shown in Section 4 to be appropriate in dealing also with severe
banking crises. Furthermore, risk-based contributions would allow a wide range of
factors which are likely to have an impact on EDIS to be taken into account. For
example, including an indicator for MREL-eligible liabilities provides an indication of
banks’ loss-absorbing capacity and could also be a proxy for the likelihood of a bank
going into resolution rather than insolvency. Therefore, including this variable means
that banks that are likely to go into resolution may have their contributions reduced
because of their higher loss-absorbing capacities and the resulting potentially lower
exposure for EDIS. This could cater for the fact that a banking system composed of
larger institutions would be less likely to benefit from EDIS as these are more likely
to be resolved, thus limiting the possible contribution needed from the deposit
insurance fund. Also, the inclusion of an interconnectedness indicator would permit
the impact of a bank’s failure on the banking system as a whole, and therefore on

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